Traders' Long-Run Wealth in an Artificial Financial Market

Computational Economics - 2003
Marco Raberto1, Silvano Cincotti1, Sergio M. Focardi2, Michele Marchesi3
1DIBE, University of Genova, Genova, Italy
2The Intertek Group, Paris, France
3DIEE, University of Cagliari, Cagliari, Italy

Tóm tắt

In this paper, we study the long-run wealth distribution of agents with different trading strategies in the framework of the Genoa Artificial Stock Market.The Genoa market is an agent-based simulated market able to reproduce the main stylised facts observed in financial markets, i.e., fat-tailed distribution of returns and volatility clustering. Various populations of traders have been introduced in a`thermal bath' made by random traders who make random buy and sell decisions constrained by the available limited resources and depending on past price volatility. We study both trend following and trend contrarian behaviour; fundamentalist traders (i.e., traders believing that stocks have a fundamental price depending on factors external to the market) are also investigated. Results show that the strategy alone does not allow forecasting which population will prevail. Trading strategies yield different results in different market conditions. Generally, in a closed market (a market with no money creation process), we find that trend followers lose relevance and money to other populations of traders and eventually disappear, whereas in an open market (a market with money inflows), trend followers can survive, but their strategy is less profitable than the strategy of other populations.

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Computational Economics

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