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The effects of intelligence on price discovery and market efficiency

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  • Yeh, Chia-Hsuan

Abstract

The influence of speculation on market performance has long been discussed. Under the framework of bounded rationality in which traders are endowed with different intelligence levels in terms of different learning styles or different representations of intelligence, we examine the effects of traders' intelligence on price discovery based on "intraday" data, and market efficiency. We find that intelligence does help improve market performance. However, the influence of different intelligence levels on the market crucially depends on the characteristics of learning styles or the representation of intelligence.

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  • Yeh, Chia-Hsuan, 2008. "The effects of intelligence on price discovery and market efficiency," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 613-625, December.
    • Handle: RePEc:eee:jeborg:v:68:y:2008:i:3-4:p:613-625
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    2. Viktor Manahov & Mona Soufian & Robert Hudson, 2014. "The Implications Of Trader Cognitive Abilities On Stock Market Properties," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 21(1), pages 1-18, January.
    3. Yeh, Chia-Hsuan & Yang, Chun-Yi, 2010. "Examining the effectiveness of price limits in an artificial stock market," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2089-2108, October.
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    5. Soufian, Mona & Forbes, William & Hudson, Robert, 2014. "Adapting financial rationality: Is a new paradigm emerging?," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(8), pages 724-742.
    6. Ladley, Daniel & Lensberg, Terje & Palczewski, Jan & Schenk-Hoppé, Klaus Reiner, 2015. "Fragmentation and stability of markets," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 466-481.
    7. Lijian Wei & Xiong Xiong & Wei Zhang & Xue-Zhong He & Yongjie Zhang, 2017. "The effect of genetic algorithm learning with a classifier system in limit order markets," Published Paper Series 2017-3, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    8. Manahov, Viktor & Hudson, Robert & Linsley, Philip, 2014. "New evidence about the profitability of small and large stocks and the role of volume obtained using Strongly Typed Genetic Programming," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 299-316.
    9. Ladley, Daniel, 2020. "The high frequency trade off between speed and sophistication," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    10. Daniel Ladley, 2019. "The Design and Regulation of High Frequency Traders," Discussion Papers in Economics 19/02, Division of Economics, School of Business, University of Leicester.

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