From minority games to real markets

DOI10.1080/713665543zbMATH Open1405.91731arXivcond-mat/0011042OpenAlexW2097865495MaRDI QIDQ4646473FDOQ4646473

Authors:

Publication date: 14 January 2019

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: 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 behavior 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 behavior 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 market, 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.

Full work available at URL: https://arxiv.org/abs/cond-mat/0011042

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zbMATH Keywords

minority game modelreal financial markets

Mathematics Subject Classification ID

Other game-theoretic models (91A40) Actuarial science and mathematical finance (91G99)

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