
The Theoretical and Empirical Perspectives of Efficient Stock Market
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3.2 Informational efficiency
As stated above, internal efficiency refers to the internal mechanisms of the
market. A sound mechanism is a determinant of smooth market operation.
However, external efficiency relates to the outside influences on the market. Of
those influences, information has the greatest effect on pricing. Usually, following
the release of information, the share prices are adjusted up or down, and share
returns rise and fall. The prices of shares act as signals for capital allocation into
the most productive ...