On the Possibility of Informationally Efficient Markets

In a dynamic asset pricing model informed traders receive a noisy signal of the value of a risky asset while uninformed traders learn to extract the information from the price. The relative popularity of the two strategies depends on past performance. The asymptotic properties of the model and the possibility of an informationally efficient market depend on whether the population dynamics determine the level of popularity of the strategies or the direction of innovation in popularity. Allowing all traders to access both types of information introduces a stable fixed point, but also a paradox of inconsistency.