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

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Author Info
Damien Challet
Tobias Galla

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Abstract

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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File URL: http://arxiv.org/abs/cond-mat/0404264
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File URL: http://arxiv.org/pdf/cond-mat/0404264
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number cond-mat/0404264.

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Date of creation: Apr 2004
Date of revision: Dec 2004
Handle: RePEc:arx:papers:cond-mat/0404264

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Matteo Marsili & Damien Challet, 2001. "Trading Behavior And Excess Volatility In Toy Markets," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 3-17. [Downloadable!] (restricted)
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  2. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May. [Downloadable!] (restricted)
  3. Paul Jefferies & Michael Hart & Neil Johnson & P.M. Hui, 2001. "From market games to real-world markets," OFRC Working Papers Series 2001mf02, Oxford Financial Research Centre. [Downloadable!]
  4. A C C Coolen & J A F Heimel, 2001. "Dynamical Solution of the On-Line Minority Game," Quantitative Finance Papers cond-mat/0107600, arXiv.org. [Downloadable!]
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  1. Simone Bianco & Roberto Ren\'o, 2006. "Unexpected volatility and intraday serial correlation," Quantitative Finance Papers physics/0610023, arXiv.org. [Downloadable!]
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