What creates inefficiencies in a theoretically efficient market?
As we all know, Investors are constantly engaged in securities research and trading to seek profits. If the market were truly efficient, no Investor should be able to find an opportunity to make any money. Unfortunately for academics, but fortunately for Investors, the market does seem to reveal a great number of inefficiencies many times a day. Every time the new information arrives in the market, it affects the risk and return structures for all securities in a different magnitude. As a consequence, the relative risk/return ratio changes among all traded securities. This causes a need to rebalance a portfolio and create a new portfolio that may indeed guarantee profits after transaction costs.
