How Do Information Systems Affect Market Efficiency?

 How Do Information Systems Affect Market Efficiency?

As we already know that the demand and supply are the reasons why stock prices are fluctuating like waves on the sea. And we also know that multiple factors would influence the waves' upper and drop. According to the price theory, if the market price of anything differs from the equilibrium price, market participants will bid the market price up or down until equilibrium is achieved. However, the equilibrium price is determined by the demand and supply which means they are influenced by factors like the prices of alternative goods, expectations, technology, income, preferences, the number of participants, natural events, government, regulations, and more. 

To Know The Price of Relative Investment Are Available

As we also know, these factors are also hugely influenced by information technology. For example, the prices of alternative goods, how do know that somewhere, has a cheaper alternative good that can increase your return before we have Google, the internet? Without these tools, how can you quickly get that kind of information to adjust your investment and your portfolio? It may take days or even longer for everyone to make a wise decision with poor information technology. Today, real-time news or podcasts can give you some pieces of information although they are not always right. But they do reduce the time we need to search for relative information and help us make decisions more quickly.

Expectations

How do predict the future of the price a stock and invest it before it becomes the next Tesla? You make your prediction and imagine the future with your own model. But how much information do you have in your brain? Or, just a dream? Information technology helps us make much more "real" decisions instead of just predict the dream can true.

The Number of Participants 

Recently, a very popular app called Robinhood helps many young and first-time traders in the US to build their first portfolios. The app helps tons of traders to quickly trade on the move with a single click and confirm, and hugely upsized the liquidity of the capital investment. Investors who value any particular asset most highly will click the buy button to own it, and more and more people have the opportunity to pay the most for it, therefore allocationally efficient. 

Reference
Wright, R.E. & Quadrini, V. (2009). Money and Banking. Saylor Foundation. Licensed under Creative Commons Attribution-NonCommercial-ShareAlike CC BY-NC-SA 3.0 license.