Trading activity means how frequently securities are bought and sold in the market.
Higher trading activity usually improves market efficiency because information gets reflected in prices through trades. If trading activity is low, prices may not adjust quickly.
Example:
Suppose a stock has positive news and its fair value increases from ₹300 to ₹360.
If the stock is actively traded, many investors may buy it, and the price may move quickly toward ₹360.
But if only a few shares are traded each day, the price may move slowly from ₹300 to ₹320, then ₹340, and later ₹360.
This slow price movement shows lower market efficiency.
So, active trading helps prices reflect information faster.