Following Fama’s (1970a) dictum, asset markets are said to be efficient if security prices fully reflect all available information. Of course, this strong form of efficiency has been subject to considerable critique from two main strands. First, trading and gathering information are not costless. Grossman/Stiglitz (1980) argue that efficient markets should reflect relevant information only to the point where the marginal benefits of acting on information do not exceed the marginal cost. If markets are perfectly efficient, the return on getting information is nil. There would be little reason to trade and markets would eventually collapse. In other words, the degree of market inefficiency determines the effort investors are willing to expend to gather and trade on information. A non-degenerate market equilibrium will arise only when there are sufficient profit opportunities, i.e. inefficiencies to compensate investors for the cost of trading and information gathering. Second, for a long time financial economists used to think that market efficiency implies that returns follow a random walk. Indeed, the old market efficiency-constant expected return model seemed to perform well in the early literature.1 However, the argument has come under attack both theoretically as well as empirically more recently. In particular, it is only under the strong assumption of constant expected returns that the random walk model is inevitably implied by the traditional efficient market hypothesis