From Minority Games to Real Markets

Posted: 25 Sep 2001

See all articles by Damien Challet

Damien Challet

CentraleSupélec; Encelade Capital SA

Alessandro Chessa

Universita di Cagliari

Matteo Marsili

Abdus Salam International Centre Theoretical Physics (ICTP)

Yi-Cheng Zhang

Universite de Fribourg

Abstract

We address the question of market efficiency using the Minority Game (MG) model. First we show that removing unrealistic features of the MG leads to models which reproduce a scaling behaviour close to what is observed in real markets. In particular we find that (i) fat tails and clustered volatility arise at the phase transition point and that (ii) the crossover to random walk behaviour of prices is a finite-size effect. This, on one hand, suggests that markets operate close to criticality, where the market is marginally efficient. On the other it allows one to measure the distance from criticality of real markets, using cross-over times. The artificial market described by the MG is then studied as an ecosystem with different species of traders. This clarifies the nature of the interaction and the particular role played by the various populations.

Suggested Citation

Challet, Damien and Chessa, Alessandro and Marsili, Matteo and Zhang, Yi-Cheng, From Minority Games to Real Markets. Quantitative Finance, Vol. 1, No. 1, pp. 168-176, January 2001. Available at SSRN: https://ssrn.com/abstract=269330

Damien Challet (Contact Author)

CentraleSupélec ( email )

Labo MICS
3, rue Joliot-Curie
Gif-sur-Yvette, 91192
France

Encelade Capital SA ( email )

Chemin du Bochet 8
Sulpice, 1025
Switzerland

Alessandro Chessa

Universita di Cagliari

Department of Fisica and Unita INFM
I-09123 Cagliari
ITALY

Matteo Marsili

Abdus Salam International Centre Theoretical Physics (ICTP)

Strada Costiera 11
34100 Trieste
Italy

Yi-Cheng Zhang

Universite de Fribourg

Institut de Physique Theorique
Fribourg, FR 1700
Switzerland

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