Market efficiency discusses the degree that market prices reflect available information that is relevant to valuing an asset. For instance if I am valuing a stock (a percentage ownership in a firm) I need to know the size of expected future payments to me, the timing of those payments, and the risk (interest) associated with those payments. If the market price reflects all known information then the market is said to be efficient. If certain insiders of the company know something about the future size of the payments and this information is not reflected in the current stock price then the market is not perfectly efficient.

Consider if you are going to purchase a house. What information do you need to know in order to value that house? Do you know everything you need to know? What is some information you probably dont know? Would you know more if the house is one in your neighborhood? What if the house is in Paris France?