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Strong-form efficiency theory suggests that no investor can earn an above economic return from using any information, public or private.
One could infer from this that the information has already been fully impounded into the price, and that there is a strong-form efficiency.
Finally, in the fifth section strong-form efficiency is evaluated using these same games and applying the concept of a rational expectations equilibrium.
We now turn our attention to strong-form efficiency, which involves more sophisticated bettor behavior: the ability to forecast the expected value of a lotto ticket given the information available to them.
A simple comparison of expected value with one minus the takeout rate thus does not constitute a meaningful test of strong-form efficiency.
Since a direct test of strong-form efficiency is not possible, we propose the following test of market efficiency instead.