Financial Market Efficiency Should be Gauged in Relative Rather than Absolute Terms

Sergio Da Silva

MPRA Paper from University Library of Munich, Germany

Abstract: Economists assess the efficiency of financial markets in absolute, all-or-nothing terms. However, this is at odds with a no-nonsense physics approach. Here, I describe how the relative efficiency of markets can be gauged taking advantage of algorithmic complexity theory. This is not physics-envy because the approach is superior in considering the proper randomness present in complex financial markets.

Keywords: Algorithmic complexity theory; Efficient market hypothesis; Financial market efficiency; Relative market efficiency; Mild type I randomness; Wild type II randomness (search for similar items in EconPapers)
JEL-codes: G00 G14 (search for similar items in EconPapers)
Date: 2015
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Published in Journal of Stock & Forex Trading 1.4(2015): pp. 140

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