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Probably some readers of our last column might have thought the critical analysis of financial market efficiency quite theoretical without any applicability. That this is not so, is actually indicated by some post-crisis research. In that respect, the recent financial crisis has led to some puzzling situations as far as financial economics is concerned. Indeed, quite many markets exhibited a lack of volume. Even though dealers continued to post bid and ask prices, in some markets no trade actually materialized at those prices. This occurrence is at variance with standard asset pricing and microstructure models. Actually, the fact that no trade occurs at differing bid-ask spreads seems to indicate the existence of price indeterminacy.
Thus, a recent paper by Easley and...
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