Limited profit in predictable stock markets

Details Limited profit in predictable stock markets Limited profit in predictable stock markets

2004-03-24

arxiv.org/abs/cond-mat/0403621v2

Physics

Condensed Matter

Statistical Mechanics

4 pages, 4 figures

Scientific paper

10.1016/j.physa.2004.09.010

It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to measure inefficiencies of markets in terms of the maximal profit an ideal trader can take out from a market. In a stock market model with an evolutionary selection of agents this method reveals that the mean relative amount of realizable profits $P$ is very limited and we find that it decays with rising number of agents in the markets. Our results show that markets may self-organize their collective dynamics such that it becomes very sensitive to profit attacks which demonstrates that a high degree of market efficiency can coexist with predictability.

Affiliated with

Also associated with

No associations

Rating

Limited profit in predictable stock markets does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Limited profit in predictable stock markets, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Limited profit in predictable stock markets will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-89549