Advanced Search
MyIDEAS: Login to save this article or follow this journal

Agent-Based Approach to Investors? Behavior and Asset Price Fluctuation in Financial Markets

Contents:

Author Info

Abstract

In this paper, we use Agent-Based Approach to analyze how asset prices are affected by investors and investment systems that are based on Behavioral Finance. We build a virtual financial market that contains two types of investors: fundamentalists and non-fundamentalists. As a result of intensive experiments in the market, we find that (1) the traded price agrees with the fundamental value and the fundamentalists survive according to the principle of natural selection in the case that the market contains the same number of fundamentalists and trend predictors (investors who make trend prediction), (2) the traded price largely deviates from the fundamental value and the non-fundamentalists frequently obtain excess returns and therefore the fundamentalists are eliminated according to the principle of natural selection in the case that the proportion of trend predictors is extremely high or in the case that the investment ratio of the risk asset is restricted, and (3) the traded price largely deviates from the fundamental value in the case that the non-fundamentalists estimate the losses excessively, as pointed in Prospect Theory. These results indicate that the non-fundamentalists affect the traded prices and obtain excess returns also in real markets.

Download Info

If 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.
File URL: http://jasss.soc.surrey.ac.uk/6/3/3.html
Download Restriction: no

Bibliographic Info

Article provided by Journal of Artificial Societies and Social Simulation in its journal Journal of Artificial Societies and Social Simulation.

Volume (Year): 6 (2003)
Issue (Month): 3 ()
Pages: 3

as in new window
Handle: RePEc:jas:jasssj:2002-35-3

Contact details of provider:

Related research

Keywords: Agent-Based Approach; Financial Engineering; Behavioral Finance; natural selection; Society dynamics; Self-organizing systems and emergent organization;

References

References listed on IDEAS
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.:
as in new window
  1. Harrison Hong & Jeremy C. Stein, 1997. "A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets," NBER Working Papers 6324, National Bureau of Economic Research, Inc.
  2. KIRMAN, Alan & TEYSSIÈRE, Gilles, . "Microeconomic models for long memory in the volatility of financial time series," CORE Discussion Papers RP -1593, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
  5. Lux, T. & M. Marchesi, . "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
  6. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, December.
  7. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  8. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
  9. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
  10. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
  11. 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.
  12. Herbert A. Simon, 1996. "The Sciences of the Artificial, 3rd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691914, December.
  13. Lux, Thomas, 1998. "The socio-economic dynamics of speculative markets: interacting agents, chaos, and the fat tails of return distributions," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 143-165, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Emeterio Navarro & Ruben Cantero & Joao Rodrigues & Frank Schweitzer, 2007. "Investments in Random Environments," Papers 0709.3630, arXiv.org, revised Sep 2008.
  2. Neuberger, Doris & Rissi, Roger, 2012. "Macroprudential banking regulation: Does one size fit all?," Thuenen-Series of Applied Economic Theory 124, University of Rostock, Institute of Economics.
  3. Gilbert Peffer & Barbara Llacay, 2007. "Higher-Order Simulations: Strategic Investment Under Model-Induced Price Patterns," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 10(2), pages 6.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:jas:jasssj:2002-35-3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nigel Gilbert).

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.