Abstract
The concept of information is not specified with an information space in the conventional proposition of Efficient Markets Hypothesis (EMH). As a result, due to the “joint-hypothesis problem” (Fama, 1991), the EMH is not well-defined and empirically refutable. Nonetheless, the EMH or its accompanying model of equilibrium becomes well-defined and empirically refutable once the concept of information is confined to some particular information space. The EMH hence can be deciphered either way: the traditional none-refutable way or the information-specified refutable way. The former is what we call the absolute EMH and the later the relative EMH. By virtue of a Hilbert space we demonstrate how an information space alternative to the neoclassical one is characterized and how its relative efficiency is compared against the neoclassical information space in terms of viable price systems or pricing kernels.
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