Market Efficiency Adjustment

Market efficiency adjustment is the process by which asset prices incorporate new information and reflect their fundamental value. In the context of derivatives, this involves the realignment of prices across different exchanges and instruments to prevent risk-free arbitrage.

When market participants act on new data, they close gaps between theoretical pricing models and actual market prices. This adjustment can be instantaneous or gradual depending on the liquidity and transparency of the venue.

Efficient markets minimize the duration that mispriced assets exist, making it harder for simple strategies to generate consistent returns. It is the core mechanism that drives strategy decay.