On the Possibility of Informationally Efficient Markets

David Goldbaum

No 139, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: In a dynamic asset pricing model informed traders receive a noisy signal of the value of a risky asset while uninformed traders learn to extract the information from the price. The relative popularity of the two strategies depends on past performance. An "intensity of choice" parameter is endogenous, reflecting the traders" confidence in selecting the better of the two strategies. The asymptotic properties of the model depend on the evolutionary process for modeling relative popularity. It also depends on how the treatment of the convergence of the model as the popularity of being informed declines towards zero. It is possible to create prices that are arbitrarily close to perfect efficient

Keywords: Market Efficiency; Asset Pricing; Learning (search for similar items in EconPapers)
JEL-codes: C62 D82 G14 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-mic
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