The Third Fundamental Theorem of Asset Pricing allows to apply the Second Fundamental Theorem under very mild regularity conditions regarding the process of asset prices. It has been shown that an economic equilibrium exists if and only if the price process is a martingale. Hence, market efficiency at least requires the absence of weak arbitrage  , but this is not sufficient to establish a situation where asset prices always "fully reflect " some information beyond the price history . By contrast, completeness is a sufficient and necessary condition for a market to be informationally efficient , i.e., only in that case past and future events turn out to be independent conditional on the price history with respect to the physical measure. At the end of the paper I give different characterizations of market efficiency .
Market efficiency at least requires the absence of weak arbitrage opportunities , but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects " or "rapidly adjusts to" some information flow including the evolution of asset prices . By contrast, No Weak Arbitrage together with market sensitivity is sufficient and necessary for a market to be informationally efficient .
R
The Third Fundamental Theorem of Asset Pricing allows to apply the Second Fundamental Theorem under very mild regularity conditions regarding the process of asset prices. It has been shown that an economic equilibrium exists if and only if the price process is a martingale. Hence, market
Market
A
opportunities
R
asset prices always
the market is sensitive, i.e., where it
R
reflect
reflects
R
some information beyond the price history
or "rapidly adjusts to" some information flow including the evolution of asset prices
R
completeness is a
No Weak Arbitrage together with market sensitivity is
D
condition
D
, i.e., only in that case past and future events turn out to be independent conditional on the price history with respect to the physical measure. At the end of the paper I give different characterizations of market efficiency