The efficient market hypothesis implies that abnormal returns are expected to be zero. Yet in order for markets to be efficient, arbitrageurs must be able to force prices back into equilibrium. If they earn profits in doing so, is this fact inconsistent with market efficiency? 10.6
a) In a poker game with six players, you can expect to lose 83% of the time. How can this still be a martingale?
b) In the options market, call options expire unexercised over 80% of the time." Thus the option holders frequently lose all their investment. Does this imply that the options market is not a fair game? Not a martingale? Not a sub martingale?