Trading model with pair pattern strategies
AbstractA simple trading model based on pair pattern strategy space with holding periods is proposed. Power-law behavior is observed for the return variance σ2, the price impact H and the predictability K for both models, with linear and square root impact functions. The sum of the traders’ wealth displays a positive value for the model with a square root price impact function, and a qualitative explanation is given based on the observation of the conditional excess demand 〈A|u〉. The cumulative wealth distribution also obeys a power-law behavior with an exponent close to that of real markets. An evolutionary trading model is further proposed. The elimination mechanism effectively changes the behavior of traders, and a power-law behavior is observed in the measure of zero return distribution P(r=0). The trading model with other types of traders, e.g., traders with the MG’s strategies and producers, are also carefully studied.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 387 (2008)
Issue (Month): 22 ()
Contact details of provider:
Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Agent-based modeling; Minority Game; Price impact; Power-law behavior;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. Doyne Farmer, 1998.
"Market Force, Ecology, and Evolution,"
Research in Economics
98-12-117e, Santa Fe Institute.
- Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
- W. Brian Arthur, 1994. "Inductive Reasoning, Bounded Rationality and the Bar Problem," Working Papers 94-03-014, Santa Fe Institute.
- R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
- Paul Jefferies & Michael Hart & Neil Johnson & P.M. Hui, 2001. "From market games to real-world markets," OFRC Working Papers Series 2001mf02, Oxford Financial Research Centre.
- Levy, Moshe & Solomon, Sorin, 1997. "New evidence for the power-law distribution of wealth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 242(1), pages 90-94.
- Li, Yi & Riolo, Rick & Savit, Robert, 2000. "Evolution in minority games. (II). Games with variable strategy spaces," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 276(1), pages 265-283.
- Damien Challet, 2005.
"Inter-pattern speculation: beyond minority, majority and $-games,"
- Challet, Damien, 2008. "Inter-pattern speculation: Beyond minority, majority and $-games," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 85-100, January.
- Wang, Jie & Yang, Chun-Xia & Zhou, Pei-Ling & Jin, Ying-Di & Zhou, Tao & Wang, Bing-Hong, 2005. "Evolutionary percolation model of stock market with variable agent number," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 354(C), pages 505-517.
- D. Challet & A. Chessa & M. Marsili & Y-C. Zhang, 2001.
"From Minority Games to real markets,"
Taylor & Francis Journals, vol. 1(1), pages 168-176.
- Arnab Chatterjee & Bikas K. Chakrabarti & Robin B. Stinchcombe, 2005. "Master equation for a kinetic model of trading market and its analytic solution," Papers cond-mat/0501413, arXiv.org, revised Aug 2005.
- Sysi-Aho, Marko & Chakraborti, Anirban & Kaski, Kimmo, 2003. "Adaptation using hybridized genetic crossover strategies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 322(C), pages 701-709.
- Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
- Challet, D. & Zhang, Y.-C., 1997. "Emergence of cooperation and organization in an evolutionary game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 407-418.
- Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2001.
"Stylized facts of financial markets and market crashes in Minority Games,"
Physica A: Statistical Mechanics and its Applications,
Elsevier, vol. 294(3), pages 514-524.
- Damien Challet & Matteo Marsili & Yi-Cheng Zhang, 2001. "Stylized facts of financial markets and market crashes in Minority Games," Papers cond-mat/0101326, arXiv.org.
- Li, Yi & Riolo, Rick & Savit, Robert, 2000. "Evolution in minority games. (I). Games with a fixed strategy space," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 276(1), pages 234-264.
- Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-11, May.
- Li-Xin Zhong & Wen-Juan Xu & Fei Ren & Yong-Dong Shi, 2012. "Coupled effects of market impact and asymmetric sensitivity in financial markets," Papers 1209.3399, arXiv.org, revised Jan 2013.
- Li-Xin Zhong & Wen-Juan Xu & Ping Huang & Chen-Yang Zhong & Tian Qiu, 2013. "Self-organization and phase transition in financial markets with multiple choices," Papers 1312.0690, arXiv.org.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.