EFF/KRF: First, if front running is profitable, there must be information in the trade that is not already in market prices. Thus, security markets must not be perfectly efficient. Second, if front running speeds up the rate at which a specific piece of information is brought into the market, we might even say it improves market efficiency. More generally, however, we have to consider how front running affects those who are gathering information and trading on it. If the threat of front running reduces their incentive to collect information, front running makes markets less efficient.
Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.