Market Efficiencies and Drift: A Computational Model

53 Pages Posted: 23 Mar 2006 Last revised: 9 Nov 2008

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 efficiency or lack thereof by using sequences of prices from CRSP and COMPUSTAT data for which there is not a model of how these prices came about through individual decisions. One needs a setting in which the prices (including bids and asks) as well 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/is not semi-strong efficient. Agents in the model uncover prices in a manner reminiscent of Hayek (1948)'s notion of price discovery.

Keywords: Market efficiency, Drift, Computational model

JEL Classification: G12, G14, M41, D82

Suggested Citation

Dickhaut, John W. and Xin, Baohua, Market Efficiencies and Drift: A Computational Model (October 26, 2008). 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
Canada

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