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Turnover, account value and diversification of real traders: evidence of collective portfolio optimizing behavior

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  • David Morton de Lachapelle
  • Damien Challet

Abstract

Despite the availability of very detailed data on financial market, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus reverse-engineering attempts. This work is a contribution to the building of a set of stylized facts about the traders themselves. Using the client database of Swissquote Bank SA, the largest on-line Swiss broker, we find empirical relationships between turnover, account values and the number of assets in which a trader is invested. A theory based on simple mean-variance portfolio optimization that crucially includes variable transaction costs is able to reproduce faithfully the observed behaviors. We finally argue that our results bring into light the collective ability of a population to construct a mean-variance portfolio that takes into account the structure of transaction costs

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File URL: http://arxiv.org/pdf/0912.4723
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Paper provided by arXiv.org in its series Papers with number 0912.4723.

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Date of creation: Dec 2009
Date of revision: Jun 2010
Handle: RePEc:arx:papers:0912.4723

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