Price return auto-correlation and predictability in agent-based models of financial markets

Details Price return auto-correlation and predictability in agent-based models of financial markets Price return auto-correlation and predictability in agent-based models of financial markets

2004-04-12

arxiv.org/abs/cond-mat/0404264v3

Physics

Condensed Matter

Statistical Mechanics

7 pages, 5 figures

Scientific paper

We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use minority games to illustrate that a vanishing price return auto-correlation function does not necessarily imply market efficiency. On the contrary, we stress the difference between correlations measured conditionally and unconditionally on external patterns.

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