Efficiency and stability in complex financial markets
AbstractThe authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena - induced by the behavior of non-informed traders - or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2010-3.
Date of creation: 2010
Date of revision:
Interacting agents models; market efficiency; market stability; statistical mechanics of financial market;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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