From Minority Games to real markets

By D. Challet, A. Chessa, Matteo Marsili, Yi-Cheng Zhang. 2000

142 citations recorded by the source corpus.

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.

Subfields: Condensed Matter Physics, Economics and Econometrics, Statistical and Nonlinear Physics

View Paper: https://www.semanticscholar.org/paper/0fb11551199098de8fbeed751d443a09927acdeb

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In Condensed Matter Physics

In Economics and Econometrics

In Statistical and Nonlinear Physics

Citations in the corpus

Random walks, liquidity molasses and critical response in financial markets (2004, background): “…Farmer 2004)) are due to the presence of a critical point in the vicinity of which the market operates (see e.g. Bak (1996), and in the context of financial markets Lux and Marchesi (2000), Bouchaud (2001), Challet et al. (2001), Giardina and Bouchaud (2003) and Challet et al. (in preparation)).”