Market Efficiencies and Drift: A Computational Model

The Accounting Review 84 (6), 2009: 1805-1831

51 Pages Posted: 23 Mar 2006 Last revised: 5 Feb 2018

See all articles by John W. Dickhaut

John W. Dickhaut

Chapman University (Deceased)

Baohua Xin

University of Toronto - Rotman School of Management

Date Written: October 26, 2008

Abstract

Accounting and finance researchers show semi-strong form efficiency or lack thereof by using sequences of prices from Center for Research in Security Prices (CRSP) and Compustat data for which there is no model of how these prices arise from individual decisions. One needs a setting in which prices (including bids and asks) as well as information about individuals making the choices are both available. To begin to bridge the gap between theory and data, we extend work done by experimental economists on the double auction and model price formation that is or is not semi-strong efficient. Agents in the model uncover prices in a manner consistent with Hayek’s notion of price discovery (Hayek 1948).

Keywords: Market efficiency, Drift, Computational model

JEL Classification: G12, G14, M41, D82

Suggested Citation

Dickhaut, John and Xin, Baohua, Market Efficiencies and Drift: A Computational Model (October 26, 2008). The Accounting Review 84 (6), 2009: 1805-1831. Available at SSRN: https://ssrn.com/abstract=893065 or http://dx.doi.org/10.2139/ssrn.893065

John Dickhaut (Contact Author)

Chapman University (Deceased)

Baohua Xin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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