We introduce a mathematical theory called market connectivity that gives concrete ways to both measure the efficiency of markets and find inefficiencies in large markets. The theory leads to new methods for testing the famous efficient markets hypothesis that do not suffer from the joint-hypothesis problem that has plagued past work. Our theory suggests metrics that can be used to compare the efficiency of one market with another, to find inefficiencies that may be profitable to exploit, and to evaluate the impact of policy and regulations on market efficiency.
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