Market Efficiencies and Market Risks

Pierre-André Maugis ()
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Pierre-André Maugis: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Numerous papers constructed or simulated financial markets at an agent level, aiming to explain the non-stationarity of price processes. All such papers agree that the heterogeneity of agents and of pricing models creates a dynamics in terms of pricing models used that explains not only the non-stationarity of price processes, but also stylised facts such as bubbles and fat tails. However, all these results issue from very specific parametric set-ups, and even if multiple approaches confirm it, there is no proof of the aforementioned results outside of such specifications. By modeling agents as black boxes that receive information that they transform into an output information, information according to which they then act upon the financial market, we show that the diversity of agents is directly associated to the resulting quality of the information efficiency of the market : homogenous agents lead to good information propagation but poor information aggregation by the price, while heterogenous agents lead to good information aggregation but poor information propagation. This difference in quality of efficiency explains, outside of any parametric model, the dynamics of the number of different pricing models used within artificial stock markets.

Keywords: Market efficiency; group learning and evolutionary games; Efficience des marchés; apprentissage de groupe; jeux évolutifs (search for similar items in EconPapers)
Date: 2010-11
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00544324v1
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Published in 2010

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