In the current article, Professors Steven L. Jones and Jeffry M. Netter offer their detailed ......... on the nature of efficient capital markets.

Shortly after the US Constitution went into effect, Secretary of the Treasury Alexander Hamilton proposed that Congress ......... at face value securities that had been issued by the states and the federal government, even though these securities were then selling for much less.

After Hamilton's proposal was made public, however, congressmen and others who knew of the plan made large profits by sending their agents into the countryside to buy the securities at ......... prices before most security holders heard of the plan.

Contrast this ......... with security markets today, in which the prices of securities react very quickly to new information about their value.

Efficient capital markets are commonly thought of as markets in which security prices fully reflect all relevant information that is available about the ......... value of the securities.

Because a security is a claim on future cash flows, its current value is the ......... value of the future cash flows that the owner of the security expects to receive.

Future cash flows are discounted by an interest rate that is a ......... of the riskiness of those cash flows; the riskier the cash flows, the higher is the rate used.

The study of capital market efficiency examines how much, how fast, and how accurately available information is ......... into security prices.

The capital markets ......... funds from savers to firms, which use the funds to finance projects, so informational efficiency is necessary if funds, allocated through the capital market, are to flow to the highest-valued projects.

Management compensation packages tied to stock ......... are one way in which stockholders align management's interests with their own.