Market efficiencies and market risks

Pierre-André Maugis

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Numerous papers constructed or simulated financial markets at an agent level, aiming to explain the non-stationarity of price processes. All such papers agree that the heterogeneity of agents and of pricing models creates a dynamics in terms of pricing models used that explains not only the non-stationarity of price processes, but also stylised facts such as bubbles and fat tails. However, all these results issue from very specific parametric set-ups, and even if multiple approaches confirm it, there is no proof of the aforementioned results outside of such specifications. By modeling agents as black boxes that receive information that they transform into an output information, information according to which they then act upon the financial market, we show that the diversity of agents is directly associated to the resulting quality of the information efficiency of the market: homogenous agents lead to good information propagation but poor information aggregation by the price, while heterogenous agents lead to good information aggregation but poor information propagation. This difference in quality of efficiency explains, outside of any parametric model, the dynamics of the number of different pricing models used within artificial stock markets

Keywords: Market efficiency; group learning and evolutionary games (search for similar items in EconPapers)
JEL-codes: C73 G01 G10 G14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-11
References: Add references at CitEc
Citations:

Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2010/10094.pdf (application/pdf)

Related works:
Working Paper: Market Efficiencies and Market Risks (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:10094

Access Statistics for this paper

More papers in Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne Contact information at EDIRC.
Bibliographic data for series maintained by Lucie Label ().