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Market efficiency and the phase-lagging model of the price evolution

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  • Kulish, Vladimir V.

Abstract

The paper presents a novel mathematical model of price evolution within the market. The model accounts for a finite time lag between the disturbance (news) and the market response to it. It follows from the model that any single disturbance brings the market out of its efficient state and the market is to come back into this state after some finite relaxation time. A quantitative measure of the market efficiency–the market efficiency coefficient–has been introduced. It has been demonstrated that a phase-lagging market is never either fully efficient or fully inefficient due to the finiteness of the frequency of disturbances (news) acting upon the market.

Suggested Citation

  • Kulish, Vladimir V., 2008. "Market efficiency and the phase-lagging model of the price evolution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(4), pages 861-875.
    • Handle: RePEc:eee:phsmap:v:387:y:2008:i:4:p:861-875
    DOI: 10.1016/j.physa.2007.10.008
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    References listed on IDEAS

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    1. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-1168, September.
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    6. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
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    Cited by:

    1. Wu, Lei & Liu, Chunlin & Meng, Qingbin & Zeng, Hongchao, 2018. "Price discovery in China's inter-bank bond market," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 84-98.

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