Dresden 2017 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 19: Financial Markets and Risk Management II

SOE 19.2: Talk

Thursday, March 23, 2017, 16:30–16:45, GÖR 226

Efficency of information processing systems — •Roland Rothenstein — Hannover, Germany

We present three new findings related to the efficient market hypothesis.

First we expand the focus for the definition of efficiency and its applications from markets to all information processing systems. Second we derive a formula to quantify the efficiency of such systems between 0% and 100% in dependence from given information. With the derived definition we thirdly show that the inefficiency of a system can have two different sources. One source is the possibility to use information to predict a concrete event with higher than chance level. The other is that the pricing/ quotes in the system does not reflect the probability distribution of the possible events.

Finally we demonstrate the calculation of efficiency on a simple toy model (tossing coin) to show how one can exactly quantify the efficiency of a system, if all probabilities are known.