Dresden 2017 – wissenschaftliches Programm

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 19: Financial Markets and Risk Management II

SOE 19.3: Vortrag

Donnerstag, 23. März 2017, 16:45–17:00, GÖR 226

The efficient market hypothesis and the speed of light — •Robert Marx — TU-Dresden, Faculty of Business and Economics, Dresden, Germany

A structural change has been taking place in financial markets for about a decade, which led to its increasing technologization. Nowadays transactions are executed electronically on the exchanges and machines place orders based on algorithms. This allows a transaction rate of ever higher frequency. A part of this trade is called high-frequency trading. So far it is not clear how this kind of trade is to be judged. Much of the evidence suggests that it increases liquidity, translates new information faster into a price reaction, and thus generates more accurate prices. On the other hand, slower participants are suspended. In order to be able to assess the high-frequency trade, physical space must be included. For high-frequency traders, it plays a role where they are located in physical space relative to a stock exchange and the source of information. Their decision is influenced by the latency, which is determined by the speed of light in the used transmission medium and the bridged distance. Traditional financial models do not take into account any physical space or the principle of locality. In the context of the efficient market hypothesis (EMH), no judgment can be made regarding high-frequency trading as long as space is not included. Is it efficient? Is it fair? In the following, a model is presented, in which the EMH is examined more closely in a space-time metric.