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From Minority Games to real markets

Challet, Damien and Chessa, Alessandro and Marsili, Matteo and Zhang, Yi-Cheng From Minority Games to real markets. Quantitative Finance, 1 (1). pp. 168-176. ISSN 1469-7696 (2001)

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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.

Item Type: Article
Identification Number: 10.1080/713665543
Subjects: Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 06 Nov 2013 12:10
Last Modified: 20 Nov 2013 09:03
URI: http://eprints.imtlucca.it/id/eprint/1877

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