Transactionally Efficient Markets, Dynamic Arbitrage and Microstructure
AbstractIn this paper, we introduce a Transactionally Efficient Market Model, which evolves from the standard efficient market model, encompassing both transaction costs and bid-ask prices. Hence, we delve into how arbitrage makes its way within this complex setting. The main outgrowth of the analysis is the "trap set", which is the place where most of price trajectories should enter to put an end to supernormal profits, although the underlying dynamics seems far from coming to a halt, and becomes bewildering instead. Bid-ask arbitrage gaps will prove useful to track down those adjustments of current prices, transaction costs and fundamental values. At this point, we define a transactionally efficacious market. Furthermore, a non linear dynamics whose environment gives room to mediator and microstructure, will lead us to prove the existence of a vectorial arbitrage gap mapping which becomes operational at managing the transactional efficiency of the market, in a complex surroundings with chaotic patterns eventually. Summing up: transactionally efficient markets are those markets which are informative efficient and transactionally efficacious.
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Bibliographic InfoPaper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 151.
Date of creation: Jul 1999
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Dynamic Arbitrage; microstructure; transactional efficiency; chaos.;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Rodolfo Apreda, 2000. "A transaction costs approach to financial assets rates of return," CEMA Working Papers: Serie Documentos de Trabajo. 161, Universidad del CEMA.
- Rodolfo Apreda, 2000. "Differential Rates of Return and Residual Information Sets (A Discrete Approach)," CEMA Working Papers: Serie Documentos de Trabajo. 177, Universidad del CEMA.
- Rodolfo Apreda, 2000. "Differential Rates and Transaction Costs. A toolkit for Practitioners, accountants and financial economists," CEMA Working Papers: Serie Documentos de Trabajo. 166, Universidad del CEMA.
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