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

Authors: Damien Challet ab; Tobias Galla bcd
Affiliations:   a Nomura Centre for Quantitative Finance, Mathematical Institute, Oxford University, Oxford, UK
b The Rudolf Peierls Centre for Theoretical Physics, Oxford University, Oxford, OX1 3NP, UK
c International Center for Theoretical Physics, 34014 Trieste, Italy
d Istituto Nazionale per la Fisica della Materia (INFM), 34014 Trieste, Italy
DOI: 10.1080/14697680500363963
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 5, Issue 6 December 2005 , pages 569 - 576
Formats available: HTML (English) : PDF (English)
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Abstract

We demonstrate that minority mechanisms arise in the dynamics of markets because of price impact; accordingly the relative importance of minority and delayed majority mechanisms depends on the frequency of trading. We then use mixed Majority/Minority Games to illustrate that a vanishing price return autocorrelation function does not necessarily imply market efficiency. On the contrary, we stress that crucial differences might be present between correlations measured conditionally and unconditionally on external patterns in such models.
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