[MUSIC]

Hi, I'm Tony.

>> Hi I'm Olivier, so Tony what are we going to talk about today?

>> Well today, we're going to introduce the concept of market efficiency, and

we're mainly going to answer three questions.

How is information integrated into prices?

Can we categorize the different forms of information?

And what does all this imply for the performance of various trading strategy?

>> So if I summarize,

what we're try to learn is how to be super efficient in efficient markets.

So I know that our students are super efficient.

So now how do we define efficiency of markets or market efficiency?

So in fact we can summarize that very easily,

is that prices should reflect all available information.

So now this is in fact a summary, but which is not really former.

So how can we define that in a more formal way?

And to do that we can go to a very old paper by Eugine Farma and

he received the Nobel prize for that paper and that paper was published in 65.

So what he did is to characterize the efficiency of markets depending

on the information structure that you have and how is it reflected in the prices?

And so what do we have if you look at the slides, so we have what is called weak

efficiency, semi strong efficiency and strong efficiency.

So the first one is the weakest form in the sense that the prices only reflect

the information contained in past prices.

So if we go to the semi strong efficiency it's a little bit indeed stronger in

the sense that it should also reflect all publicly information like for example,

what you can read in the newspapers.

And the last one, which is the strongest one form of efficiency.

The prices should also reflect all private information.

So for example, the information that insiders or CEOs that said,

their heart can have about the performance of their company.

So I have just talk about the concept introduced by Eugene Fama but

that concept of market efficiency is in fact much older.

So if you look at the first paper, not coining the term but

at least introducing the fact that prices fluctuate randomly It

dates back to Louis Bachelier in 1900, so it was very, very early.