FIN 260 Lecture Notes - Lecture 43: Efficient-Market Hypothesis, Invisible Hand, Economic Equilibrium
Document Summary
In theory, efficient markets work the same way. Apples & arbitrage: ex: let"s say you live a neighborhood w/ 2 grocery stores that are around that is different about them is that they are at different locations. At both grocery stores they buy & sell apples. It is crucial that you understand that you can buy and sell apples. The apples are assumed to be of the same quality at each store. Moreover, the stores are open at the same time & have the same service. This is not an efficient market: q: now lets say you see this difference in prices between the 2 stores. What can you do: you can simply buy at the low priced store & sell at the high priced store, you make sh. 50 per apple w/out any risk. They start doing the same thing you are doing. Buying in . 50 store & selling in the . 00 store.
