Related papers: A Modern Approach to the Efficient-Market Hypothes…
Energy market designs with non-merchant storage have been proposed in recent years, with the aim of achieving optimal market integration of storage. In order to handle the time-linking constraints that are introduced in such markets,…
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trading actions of…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
We examine the dynamics of informational efficiency in a market with asymmetrically informed, boundedly rational traders who adaptively learn optimal strategies using simple multiarmed bandit (MAB) algorithms. The strategies available to…
We reconsider the microeconomic foundations of financial economics. Motivated by the importance of Knightian Uncertainty in markets, we present a model that does not carry any probabilistic structure ex ante, yet is based on a common order.…
We propose to study market efficiency from a computational viewpoint. Borrowing from theoretical computer science, we define a market to be \emph{efficient with respect to resources $S$} (e.g., time, memory) if no strategy using resources…
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…
Summarized by the efficient market hypothesis, the idea that stock prices fully reflect all available information is always confronted with the behavior of real-world markets. While there is plenty of evidence indicating and quantifying the…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
This short note provides a systematic construction of market models without unbounded profits but with arbitrage opportunities.
We study the necessity of interaction between individuals for obtaining approximately efficient allocations. The role of interaction in markets has received significant attention in economic thinking, e.g. in Hayek's 1945 classic paper. We…
In econometrics, the Efficient Market Hypothesis posits that asset prices reflect all available information in the market. Several empirical investigations show that market efficiency drops when it undergoes extreme events. Many models for…
We study the design of efficient mechanisms under asymmetric awareness and information. Unawareness refers to the lack of conception rather than the lack of information. Assuming quasi-linear utilities and private values, we show that we…
How does one allocate a collection of resources to a set of strategic agents in a fair and efficient manner without using money? For in many scenarios it is not feasible to use money to compensate agents for otherwise unsatisfactory…
How an investor invests in the market is largely influenced by the market efficiency because if a market is efficient, it is extremely difficult to make excessive returns because in an efficient market there will be no undervalued…
A stock market is called diverse if no stock can dominate the market in terms of relative capitalization. On one hand, this natural property leads to arbitrage in diffusion models under mild assumptions. On the other hand, it is also easy…
I prove that competitive market outcomes require computational intractability. If P = NP, firms can efficiently solve the collusion detection problem, identifying deviations from cooperative agreements in complex, noisy markets and thereby…
Modern mainstream financial theory is underpinned by the efficient market hypothesis, which posits the rapid incorporation of relevant information into asset pricing. Limited prior studies in the operational research literature have…
This note studies the behavior of an index I_t which is assumed to be a tradable security, to satisfy the BSM model dI_t/I_t = \mu dt + \sigma dW_t, and to be efficient in the following sense: we do not expect a prespecified trading…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…