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Medientyp:
E-Artikel
Titel:
A new measure of market inefficiency
Beteiligte:
Stephens, Christopher R.
[VerfasserIn];
Benink, Harald A.
[VerfasserIn];
Gordillo, José Luis
[VerfasserIn];
Pardo-Guerra, Juan Pablo
[VerfasserIn]
Anmerkungen:
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Beschreibung:
Financial crises, such as the Great Financial Crisis of 2007-2009 and the COVID-19 Crisis of 2020-2021, lead to high volatility in financial markets and highlight the importance of the debate on the Efficient Markets Hypothesis, a corollary of which is that in an efficient market it should not be possible to systematically make excess returns. In this paper, we discuss a new empirical measure - Excess Trading Returns - that distinguishes between market and trading returns and that can be used to measure inefficiency. We define an Inefficiency Matrix that can provide a complete, empirical characterization of the inefficiencies inherent in a market. We illustrate its use in the context of empirical data from a pair of model markets, where information asymmetries can be clearly understood, and discuss the challenges of applying it to market data from commercial exchanges.