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The value of information in financial markets: An agent-based simulation

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Author Info
Bence Toth
Enrico Scalas

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Abstract

We present results on simulations of a stock market with heterogeneous, cumulative information setup. We find a non-monotonic behaviour of traders' returns as a function of their information level. Particularly, the average informed agents underperform random traders; only the most informed agents are able to beat the market. We also study the effect of a strategy updating mechanism, when traders have the possibility of using other pieces of information than the fundamental value. These results corroborate the latter ones: it is only for the most informed player that it is rewarding to stay fundamentalist. The simulations reproduce some stylized facts of tick-by-tick stock-exchange data and globally show informational efficiency.

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File URL: http://arxiv.org/abs/0712.2687
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File URL: http://arxiv.org/pdf/0712.2687
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number 0712.2687.

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Date of creation: Dec 2007
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Handle: RePEc:arx:papers:0712.2687

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References listed on IDEAS
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  1. Kirchler, Michael & Huber, Jurgen, 2007. "Fat tails and volatility clustering in experimental asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 1844-1874, June. [Downloadable!] (restricted)
  2. Sunder, Shyam, 1992. "Market for Information: Experimental Evidence," Econometrica, Econometric Society, vol. 60(3), pages 667-95, May. [Downloadable!] (restricted)
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  3. Hellwig, Martin F., 1982. "Rational expectations equilibrium with conditioning on past prices: A mean-variance example," Journal of Economic Theory, Elsevier, vol. 26(2), pages 279-312, April. [Downloadable!] (restricted)
  4. Enrico Scalas & Taisei Kaizoji & Michael Kirchler & Juergen Huber & Alessandra Tedeschi, 2006. "Waiting times between orders and trades in double-auction markets," Quantitative Finance Papers physics/0608273, arXiv.org. [Downloadable!]
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