2000/11/20 by Roberto Baviera, Michele Pasquini, Baviera, R. +5
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Disordered Systems and Neural Networks (cond-mat.dis-nn) #FOS: Economics and business #FOS: Physical sciences #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.cond-mat/0011337
openalex publication_date 2000/11/20 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We introduce a stochastic price model where, together with a random component, a moving average of logarithmic prices contributes to the price formation. Our model is tested against financial datasets, showing an extremely good agreement with them. It suggests how to construct trading strategies which imply a capital growth rate larger than the growth rate of the underlying asset, with also the effect of reducing the fluctuations. These results are a clear evidence that some hidden information is not fully integrated in price dynamics, and therefore financial markets are partially inefficient. In simple terms, we give a recipe for speculators to make money as long as only few investors follow it.