Related papers: Does the Market Anticipate? Can it? Should it?
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
We 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.…
We study the informational efficiency of a market with a single traded asset. The price initially differs from the fundamental value, about which the agents have noisy private information (which is, on average, correct). A fraction of…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
We consider a trader who aims to liquidate a large position in the presence of an arbitrageur who hopes to profit from the trader's activity. The arbitrageur is uncertain about the trader's position and learns from observed price…
A constrained informationally efficient market is defined to be one whose price process arises as the outcome of some equilibrium where agents face restrictions on trade. This paper investigates the case of short sale constraints, a setting…
Within the well-known framework of financial portfolio optimization, we analyze the existing relationships between the condition of arbitrage and the utility maximization in presence of \emph{insider information}. We assume that, since the…
In speculative markets, risk-free profit opportunities are eliminated by traders exploiting them. Markets are therefore often described as "informationally efficient", rapidly removing predictable price changes, and leaving only residual…
An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…
Prediction markets are powerful tools to elicit and aggregate beliefs from strategic agents. However, in current prediction markets, agents may exhaust the social welfare by competing to be the first to update the market. We initiate the…
We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which…
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…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
This paper focuses on the stability of the non-arbitrage condition in discrete time market models when some unknown information $\tau$ is partially/fully incorporated into the market. Our main conclusions are twofold. On the one hand, for a…
This paper analyzes repeated version of the bilateral trade model where the independent payoff relevant private information of the buyer and the seller is correlated across time. Using this setup it makes the following five contributions.…
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…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
In many non-cooperative settings, agents often possess useful information that provide an advantage over their opponent(s), but acting on such information too frequently can lead to detection. I develop a simple framework to analyze such a…
This short note provides a systematic construction of market models without unbounded profits but with arbitrage opportunities.
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker…