Who Wins: Yoda or Sith? A Proof that Financial Markets Are Seldom Efficient

Lucian Daniel Stanciu-Viziteu ()
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Lucian Daniel Stanciu-Viziteu: University of Grenoble

A chapter in Artificial Economics and Self Organization, 2014, pp 95-106 from Springer

Abstract: Abstract We propose an artificial financial market where three types of investors compete. Value investors, that use information to align the asset’s price with it’s value are called YODA. SITH is our name for the investors who hold information but decide not to use it right away, and instead act as non-informed investors. All other agents trade without information. We show that SITH agents can make better risk-adjusted gains than YODA agents. Consequently we prove that informed investors have incentives to withhold information and act like chartist traders. Our observations lead us to state that financial markets are consistently overpricing assets and can be regarded as seldom efficient.

Keywords: Market Price; Financial Market; Risk Premium; Trading Period; Price Bubble (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-319-00912-4_8

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DOI: 10.1007/978-3-319-00912-4_8

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