Interesting Esoterica

Markets are efficient if and only if P = NP

Article by Maymin, PZ
  • Published in 2011
  • Added on
I prove that if markets are weak-form efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time. I also prove the converse by showing how we can "program" the market to solve NP-complete problems. Since P probably does not equal NP, markets are probably not efficient. Specifically, markets become increasingly inefficient as the time series lengthens or becomes more frequent. An illustration by way of partitioning the excess returns to momentum strategies based on data availability confirms this prediction.

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Other information

key
Maymin2011
type
article
date_added
2013-02-11
date_published
2011-11-14
journal
Algorithmic Finance
volume
2010

BibTeX entry

@article{Maymin2011,
	key = {Maymin2011},
	type = {article},
	title = {Markets are efficient if and only if P = NP},
	author = {Maymin, PZ},
	abstract = { I prove that if markets are weak-form efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time. I also prove the converse by showing how we can "program" the market to solve NP-complete problems. Since P probably does not equal NP, markets are probably not efficient. Specifically, markets become increasingly inefficient as the time series lengthens or becomes more frequent. An illustration by way of partitioning the excess returns to momentum strategies based on data availability confirms this prediction. },
	comment = {},
	date_added = {2013-02-11},
	date_published = {2011-11-14},
	urls = {https://arxiv.org/abs/1002.2284,https://arxiv.org/pdf/1002.2284},
	collections = {computational-complexity-of-games},
	url = {https://arxiv.org/abs/1002.2284 https://arxiv.org/pdf/1002.2284},
	urldate = {2013-02-11},
	year = 2011,
	journal = {Algorithmic Finance},
	volume = 2010
}