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.
- Pub Date:
- April 2004
- Condensed Matter - Statistical Mechanics;
- Condensed Matter - Disordered Systems and Neural Networks;
- Quantitative Finance - Trading and Market Microstructure
- 7 pages, 5 figures