Sequential information dissemination and relative market efficiency

Research in the area of capital market efficiency with respect to information generally considers only the two conclusions that the market is efficient or it is.not efficient; information is either instantaneously reflected in prices or it is not. We investigate a market structure in which individual traders may require differential time lags to respond to new information, either because of time lags in acquiring the information or because of differences in ability to process received information quickly. In the context of this market, we argue that the dichotomous view of efficiency versus inefficiency is not useful; rather it is meaningful to measure the relative efficiency of the market. We develop a measure of relative market inefficiency and investigate properties of the measure. Then we consider economic determinants of the degree of market inefficiency and review our measure of inefficiency against the criteria proposed by Goldman and Sosin (1979)