Financial Market Efficiency Should be Gauged in Relative Rather than Absolute Terms

Da Silva, Sergio (2015): Financial Market Efficiency Should be Gauged in Relative Rather than Absolute Terms. Published in: Journal of Stock & Forex Trading , Vol. 4, No. 1 (2015): p. 140.

Abstract

Economists assess the efficiency of financial markets in absolute, all-or-nothing terms. However, this is at odds with a no-nonsense physics approach. Here, I describe how the relative efficiency of markets can be gauged taking advantage of algorithmic complexity theory. This is not physics-envy because the approach is superior in considering the proper randomness present in complex financial markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Algorithmic complexity theory; Efficient market hypothesis; Financial market efficiency; Relative market efficiency; Mild type I randomness; Wild type II randomness
• Subjects: G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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