Hi all, Quick bookwork question (which totally got answered in the tutorial, but my note on it was vaguely worded): What is the distinction between an efficient market, and a perfect market (i.e. one which is necessary for CAPM to hold)? Many thanks!
There are quite a few criteria that need to be met for a market to be perfect (see Section 1.2 in Chapter 7), but in connection with efficiency, a market is said to be perfect if all investors have the same information. An efficient market is one where security prices respond to new information quickly and accurately. Hope that helps.
