• An inefficient market is a market that fails to incorporate all available information into a true reflection of the fair price of an asset.
  • Market inefficiencies exist due to information asymmetries, transaction costs, market psychology and human emotions, among other reasons.
  • As a result, some assets may be overvalued or undervalued in the market, creating opportunities for excess profits.
  • The presence of inefficient markets in the world somewhat undermines economic theory, in particular the efficient market hypothesis (EMH).