Discussion Paper

No. 2010-3 | January 04, 2010
Efficiency and Stability in Complex Financial Markets

Abstract

The authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena—induced by the behavior of non-informed traders—or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles.

Paper submitted to the special issue
Managing Financial Instability in Capitalist Economies

JEL Classification

G14

Cite As

Fabio Caccioli and Matteo Marsili (2010). Efficiency and Stability in Complex Financial Markets. Economics Discussion Papers, No 2010-3, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2010-3

Assessment



Comments and Questions


Anonymous - Referee Report 1
February 05, 2010 - 13:13

See attached file


Fabio Caccioli - Reply to Referee Report
February 08, 2010 - 17:18

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Anonymous - Referee Report 2
February 16, 2010 - 10:31

See attached file


Anonymous - Referee Report 3
February 22, 2010 - 08:57

See attached file