Earnings Announcements, Private Information and Liquidity
Last Updated: 01/26/06
Efficient financial markets facilitate the smooth transfer of money from those who save to those with profitable investment opportunities. Such markets generally exhibit high levels of trading volume and widespread market participation. Investors are willing to participate because they are convinced that the prices at which securities can be bought and sold are reasonably efficient. For example, a market participant should be able to buy or sell a share of stock in XYZ company at a price very close to the present discounted value of the market’s best estimate of XYZ’s future dividend payments.