Efficiency and Noise Traders in a One-Sided Auction Market

57 Pages Posted: 14 May 2009 Last revised: 26 May 2009

Date Written: May 12, 2009

Abstract

Natural selection is used to examine a one-sided buyer auction market. With each trader's behavior preprogrammed with its own inherent and fixed probabilities of overpredicting, predicting correctly and underpredicting the fundamental value of the asset, informational efficiency occurs. If each buyer's initial wealth is sufficiently small relative to the market supply and if the variation in the asset's random shock is sufficiently small, then as time gets sufficiently large, the proportion of time, that the asset price is arbitrarily close to the fundamental value, converges to one with probability one. This is established under a weak restriction regarding traders' behavior.

Keywords: Evolution, Natural selection, Behavioral finance, Market behavior, one-sided auction

JEL Classification: G14, G10, C73

Suggested Citation

Luo, Guo Ying, Efficiency and Noise Traders in a One-Sided Auction Market (May 12, 2009). Journal of Financial Markets, Vol. 6, 2003. Available at SSRN: https://ssrn.com/abstract=1403188

Guo Ying Luo (Contact Author)

McMaster University

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905 525 9140 ext. 23983 (Phone)

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