ABSTRACT
Market efficiency can be divided into three types: allocative efficiency, operational efficiency, and informational efficiency. Allocative efficiency is concerned with whether funds are directed to their most productive uses.This is mainly a primary market issue; the primary market being the market in which borrowers issue securities and receive payment from the initial investors (the word ‘borrowers’ here includes companies that raise money by issuing shares although, strictly speaking, share issuance is not borrowing). Allocative efficiency is concerned with the issue of which borrowers receive the finance.An allocatively efficient market is one in which the available funds go to the borrowers who will make the most productive use of them.Allocative efficiency is not the main concern here. However, it is important to be aware that allocative efficiency is dependent on operational and informational efficiency.
