We introduce a stochastic price model where, together with a random com- ponent, a moving average of logarithmic prices contributes to the price for- mation. 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 underly- ing asset, with also the e ect 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.
By Prof. R. Baviera, Prof. M. Pasquini, Prof. J. Raboanary and Prof. M. Serva
Next: Introduction
Summary: Index