Fama (1970) defined an efficient market as one in which prices always “fully reflect” available information. This paper formalizes this definition and provides various characterizations relating to equilibrium models, profitable trading strategies, and equivalent martingale measures. These...

Given a market with a price process S populated by heterogeneous traders with differential information, beliefs, and trading constraints, let the smallest information set containing all of the traders' information be denoted F. This market is defined to be informationally efficient (Fama [2])...

The martingale theory of price bubbles defines an asset bubble to exist when the asset's price process is a strict local martingale, that is, a local martingale that is not a martingale. Using this definition of a price bubble, for continuous semimartingales, we characterize the conditions under...

A constrained informationally efficient market is defined to be one whose price process arises as the outcome of some equilibrium where agents face restrictions on trade. This paper investigates the case of short sale constraints, a setting which despite its simplicity, generates new insights....

Polynomial processes have the property that expectations of polynomial functions (of degree n, say) of the future state of the process conditional on the current state are given by polynomials (of degree n) of the current state. Here we explore the application of polynomial processes in the...

Empirical evidence suggests that fixed income markets exhibit unspanned stochastic volatility (USV), that is, that one cannot fully hedge volatility risk solely using a portfolio of bonds. While Collin-Dufresne and Goldstein (2002) showed that no two-factor Cox-Ingersoll-Ross (CIR) model can...