Efficiency of Competitive Stock Markets Where Trades have Diverse Information 581 (see Degroot 1970], p. 167). That is, the posterior mean of P, is a weighted average of the prior mean PI and the sample mean y. Note that E[Pvyi, ao+aiy] =ElP,l]=E[PI D] if aI>0. Hence E[PIly, P0()]=I+na Similarly, var[ Ply, Po()]=Var[Ply] Using(13),(14,(26),and(27) (1+ny) X3=2〈+m (1+)(ao+a1 Using the definitions of ao and a, given in(16)and (17),(28)becomes ∑ⅹ[P:,y yI (F+no分) (1+m2) (1+r) (1+m3)+)21(1+m0301+) (29) The right hand side of (29)reduces to X. Thus for all y d[ Po, y]=X. QED Thus, in equilibrium the current price summarizes all the information in the market. Each trader finds his own yi, redundant. This creates strong disincentives for investment in information, since each trader could do as well by observing only