Over the last decades passive investment products have continuously increased in importance. The efficiency of financial markets is often identified as the main reason for this development. We propose a theoretical framework which reverses the causality by showing that market efficiency might...

We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We show that prices are farther away from (closer to) fundamentals compared with average expectations if and only if traders over- (under-) rely on public...