A new look at financial markets efficiency from linear response theory

In this paper we propose a new measure of market efficiency based on the average response of a market price after a market event by using Linear Response Theory. It is shown that the average response to an event in different markets agrees fairly well with this theory’s prediction from equilibrium data in absence of external forces or events. In this work it is first found that Linear Response efficiently resolves price dynamics at moderately perturbed financial markets of different types. Namely we study Forex markets, the S&P500 index, Commodities markets and the Bitcoin-US dollar one. Furthermore, we determine a measure of market inefficiency, which can be used to compare the inefficiency between different assets and securities.