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How do skilled traders change the structure of the market

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Author Info

  • Vacha, Lukas
  • Barunik, Jozef
  • Vosvrda, Miloslav

Abstract

We extend the original heterogeneous agent model of Brock and Hommes (1998) by introducing the concept of skilled traders. The idea of skilled traders is based on the endeavor of market agents to estimate future price movements. We distinguish between the three groups of skilled traders according to their trading strategies. The first group consists of skilled traders who estimate the trend parameter and have randomly generated bias. The second group has fixed bias to zero, and the third group, most advanced one, is able to estimate the bias parameter. The most interesting result from simulations is that for all model settings the stock market changes its structure at some point with growing number of skilled traders.

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File URL: http://www.sciencedirect.com/science/article/pii/S105752191100072X
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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 23 (2012)
Issue (Month): C ()
Pages: 66-71

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Handle: RePEc:eee:finana:v:23:y:2012:i:c:p:66-71

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Heterogeneous agent model; Market structure; Skilled traders; Hurst exponent;

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References

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  1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  2. Gaunersdorfer, Andrea & Hommes, Cars H. & Wagener, Florian O.O., 2008. "Bifurcation routes to volatility clustering under evolutionary learning," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 27-47, July.
  3. J. Doyne Farmer & Shareen Joshi, 2000. "The price dynamics of common trading strategies," Papers cond-mat/0012419, arXiv.org.
  4. Jozef Barunik & Lukas Vacha & Miloslav Vosvrda, 2009. "Smart predictors in the heterogeneous agent model," Journal of Economic Interaction and Coordination, Springer, vol. 4(2), pages 163-172, November.
  5. Jozef Barunik & Ladislav Kristoufek, 2012. "On Hurst exponent estimation under heavy-tailed distributions," Papers 1201.4786, arXiv.org.
  6. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
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Cited by:
  1. Jiri Kukacka & Jozef Barunik, 2012. "Behavioural breaks in the heterogeneous agent model: the impact of herding, overconfidence, and market sentiment," Papers 1205.3763, arXiv.org, revised May 2013.

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