A computational view of market efficiency
August 31, 2009
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
Taylor & Francis
2012
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| Online Access: | http://hdl.handle.net/1721.1/75357 https://orcid.org/0000-0003-2944-7773 |
| _version_ | 1826204639867961344 |
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| author | Hasanhodzic, Jasmina Lo, Andrew W. Viola, Emanuele |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Hasanhodzic, Jasmina Lo, Andrew W. Viola, Emanuele |
| author_sort | Hasanhodzic, Jasmina |
| collection | MIT |
| description | August 31, 2009 |
| first_indexed | 2024-09-23T12:58:38Z |
| format | Article |
| id | mit-1721.1/75357 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T12:58:38Z |
| publishDate | 2012 |
| publisher | Taylor & Francis |
| record_format | dspace |
| spelling | mit-1721.1/753572022-09-28T11:15:15Z A computational view of market efficiency Hasanhodzic, Jasmina Lo, Andrew W. Viola, Emanuele Sloan School of Management Hasanhodzic, Jasmina Lo, Andrew W. Viola, Emanuele August 31, 2009 We study market efficiency from a computational viewpoint. Borrowing from theoretical computer science, we define a market to be efficient with respect to resources S (e.g., time, memory) if no strategy using resources S can make a profit. As a first step, we consider memory-m strategies whose action at time t depends only on the m previous observations at times t − m, … , t − 1. We introduce and study a simple model of market evolution, where strategies impact the market by their decision to buy or sell. We show that the effect of optimal strategies using memory m can lead to ‘market conditions’ that were not present initially, such as (1) market spikes and (2) the possibility for a strategy using memory m′ > m to make a bigger profit than was initially possible. We suggest ours as a framework to rationalize the technological arms race of quantitative trading firms. Sloan School of Management. Laboratory for Financial Engineering AlphaSimplex Group, LLC 2012-12-10T21:34:14Z 2012-12-10T21:34:14Z 2011-06 2010-04 Article http://purl.org/eprint/type/JournalArticle 1469-7688 1469-7696 http://hdl.handle.net/1721.1/75357 Hasanhodzic, Jasmina, Andrew W. Lo, and Emanuele Viola. “A Computational View of Market Efficiency.” Quantitative Finance 11.7 (2011): 1043–1050. https://orcid.org/0000-0003-2944-7773 en_US http://dx.doi.org/10.1080/14697688.2010.541487 Quantitative Finance Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf Taylor & Francis arXiv |
| spellingShingle | Hasanhodzic, Jasmina Lo, Andrew W. Viola, Emanuele A computational view of market efficiency |
| title | A computational view of market efficiency |
| title_full | A computational view of market efficiency |
| title_fullStr | A computational view of market efficiency |
| title_full_unstemmed | A computational view of market efficiency |
| title_short | A computational view of market efficiency |
| title_sort | computational view of market efficiency |
| url | http://hdl.handle.net/1721.1/75357 https://orcid.org/0000-0003-2944-7773 |
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