CAPITAL MARKET EFFICIENCY AND TSALLIS ENTROPY

Abstract. The concept of the capital market efficiency is a central notion in the financial markets theory. This notion is generally useful to describe a capital market in which is relevant information. If relevant information is completely processed by the capital market price mechanism then such capital market is called to be efficient. Thus the capital market efficiency accentuates the informational efficiency of capital markets. It means that in the efficient capital market investors cannot expect achieving of enormous returns by long time. In other words, the capital market is efficient if the fluctuations of returns in time are unpredictable. Thus a time series of such fluctuations can be generated by some derivations of Brownian motion. Considering long range macroeconomic forces which are non-extensive, we use Tsallis’s approach for maximum entropy formulating. By this way it is possible to obtain fat tailed distributions by power laws optimizing Tsallis’s entropy and to give some theoretical base to some stylized facts on capital markets. For the estimating of the capital market efficiency is used the notion Tsallis entropy (information gain)