Market efficiency and the phase-lagging model of the price evolution

Vladimir V. Kulish

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 4, 861-875

Abstract: The paper presents a novel mathematical model of price evolution within the market. The model accounts for a finite time lag between the disturbance (news) and the market response to it. It follows from the model that any single disturbance brings the market out of its efficient state and the market is to come back into this state after some finite relaxation time. A quantitative measure of the market efficiency–the market efficiency coefficient–has been introduced. It has been demonstrated that a phase-lagging market is never either fully efficient or fully inefficient due to the finiteness of the frequency of disturbances (news) acting upon the market.

Keywords: Efficient market hypothesis; Phase-lagging model of price formation; The market efficiency coefficient (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:4:p:861-875

DOI: 10.1016/j.physa.2007.10.008

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