On the Possibility of Informationally Efficient Markets
AbstractIn a dynamic asset pricing model informed traders receive a noisy signal of the value of a risky asset while uninformed traders learn to extract the information from the price. The relative popularity of the two strategies depends on past performance. The asymptotic properties of the model and the possibility of an informationally efficient market depend on whether the population dynamics determine the level of popularity of the strategies or the direction of innovation in popularity. Allowing all traders to access both types of information introduces a stable fixed point, but also a paradox of inconsistency.
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Bibliographic InfoPaper provided by Department of Economics, Rutgers University, Newark in its series Working Papers Rutgers University, Newark with number 2004-009.
Length: 29 pages
Date of creation: Oct 2004
Date of revision:
Efficient Markets; Learning; Dynamics; Computational Economics;
Other versions of this item:
- David Goldbaum, 2004. "On the Possibility of Informationally Efficient Markets," Computing in Economics and Finance 2004 139, Society for Computational Economics.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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