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Price return auto-correlation and predictability in agent-based models of financial markets

Damien Challet·Tobias Galla
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Abstract

We demonstrate that minority mechanisms arise in the dynamics of markets because of effects of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use minority games to illustrate that a vanishing price return auto-correlation function does not necessarily imply market efficiency. On the contrary, we stress the difference between correlations measured conditionally and unconditionally on external patterns.

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Damien Challet, Tobias Galla. 2004-12-14. Price return auto-correlation and predictability in agent-based models of financial markets. https://arxiv.org/abs/cond-mat/0404264

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