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Who Wins: Yoda or Sith? A Proof that Financial Markets Are Seldom Efficient

In: Artificial Economics and Self Organization

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  • Lucian Daniel Stanciu-Viziteu

    (University of Grenoble)

Abstract

We propose an artificial financial market where three types of investors compete. Value investors, that use information to align the asset’s price with it’s value are called YODA. SITH is our name for the investors who hold information but decide not to use it right away, and instead act as non-informed investors. All other agents trade without information. We show that SITH agents can make better risk-adjusted gains than YODA agents. Consequently we prove that informed investors have incentives to withhold information and act like chartist traders. Our observations lead us to state that financial markets are consistently overpricing assets and can be regarded as seldom efficient.

Suggested Citation

  • Lucian Daniel Stanciu-Viziteu, 2014. "Who Wins: Yoda or Sith? A Proof that Financial Markets Are Seldom Efficient," Lecture Notes in Economics and Mathematical Systems, in: Stephan Leitner & Friederike Wall (ed.), Artificial Economics and Self Organization, edition 127, pages 95-106, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-00912-4_8
    DOI: 10.1007/978-3-319-00912-4_8
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