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Traders’ long-run wealth in an artificial financial market

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Author Info

  • Marco Raberto
  • Silvano Cincott
  • Sergio M. Focardi
  • Michele Marchesi

Abstract

In this paper, we study the long-run wealth distribution of agents with different trading strategies in the framework of the Genoa Artificial Stock Market.The Genoa market is an agent-based simulated market able to reproduce the main stylised facts observed in financial markets, i.e., fat-tailed distribution of returns and volatility clustering. Various populations of traders have been introduced in a`thermal bath' made by random traders who make random buy and sell decisions constrained by the available limited resources and depending on past price volatility. We study both trend following and trend contrarian behaviour; fundamentalist traders (i.e., traders believing that stocks have a fundamental price depending on factors external to the market) are also investigated. Results show that the strategy alone does not allow forecasting which population will prevail. Trading strategies yield different results in different market conditions. Generally, in a closed market (a market with no money creation process), we find that trend followers lose relevance and money to other populations of traders and eventually disappear, whereas in an open market (a market with money inflows), trend followers can survive, but their strategy is less profitable than the strategy of other populations. Copyright Kluwer Academic Publishers 2003

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2002 with number 301.

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Date of creation: 01 Jul 2002
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Handle: RePEc:sce:scecf2:301

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Related research

Keywords: artificial financial markets; market simulations; wealth distribution; trading strategies; trading behaviour; asset prices; econophysics;

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References

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  1. H.E. Roman & M. Porto & N. Giovanardi, 2001. "Anomalous scaling of stock price dynamics within ARCH-models," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 21(2), pages 155-158, May.
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  9. Yanhui Liu & Parameswaran Gopikrishnan & Pierre Cizeau & Martin Meyer & Chung-Kang Peng & H. Eugene Stanley, 1999. "The statistical properties of the volatility of price fluctuations," Papers cond-mat/9903369, arXiv.org, revised Mar 1999.
  10. Lux, Thomas, 1997. "Time variation of second moments from a noise trader/infection model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 1-38, November.
  11. Marco Raberto & Silvano Cincotti & Sergio M. Focardi & Michele Marchesi, 2001. "Agent-based simulation of a financial market," Papers cond-mat/0103600, arXiv.org, revised Mar 2001.
  12. Zhi-Feng Huang, Sorin Solomon*, 2001. "Power, Levy, Exponential and Gaussian Regimes in Autocatalytic Financial Systems," Computing in Economics and Finance 2001 12, Society for Computational Economics.
  13. Huang, Zhi-Feng & Solomon, Sorin, 2001. "Finite market size as a source of extreme wealth inequality and market instability," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(3), pages 503-513.
  14. Jean-Philippe Bouchaud & Marc Mezard, 2000. "Wealth condensation in a simple model of economy," Science & Finance (CFM) working paper archive 500026, Science & Finance, Capital Fund Management.
  15. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
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Citations

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Cited by:
  1. Marco Raberto & Andrea Teglio & Silvano Cincotti, 2008. "Integrating Real and Financial Markets in an Agent-Based Economic Model: An Application to Monetary Policy Design," Computational Economics, Society for Computational Economics, vol. 32(1), pages 147-162, September.
  2. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
  3. Derveeuw, Julien & Beaufils, Bruno & Mathieu, Philippe & Brandouy, Olivier, 2007. "Testing double auction as a component within a generic market model architecture," MPRA Paper 4918, University Library of Munich, Germany.
  4. Emeterio Navarro & Ruben Cantero & Joao Rodrigues & Frank Schweitzer, 2007. "Investments in Random Environments," Papers 0709.3630, arXiv.org, revised Sep 2008.
  5. Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "Modeling and Simulation of an Artificial Stock Option Market," Computational Economics, Society for Computational Economics, vol. 32(1), pages 37-53, September.
  6. Marco Raberto & Silvano Cincotti, 2004. "Multi-agent modeling and simulation of a sequential monetary production economy," Computing in Economics and Finance 2004 260, Society for Computational Economics.
  7. J. Emeterio Navarro Barrientos & Frank E. Walter & Frank Schweitzer, 2008. "Risk-Seeking versus Risk-Avoiding Investments in Noisy Periodic Environments," Papers 0801.4305, arXiv.org, revised Sep 2008.
  8. Daniel Fricke & Thomas Lux, 2013. "The Effects of a Financial Transaction Tax in an Artificial Financial Market," Kiel Working Papers 1868, Kiel Institute for the World Economy.
  9. Erika Corona & Sabrina Ecca & Michele Marchesi & Alessio Setzu, 2008. "The Interplay Between Two Stock Markets and a Related Foreign Exchange Market: A Simulation Approach," Computational Economics, Society for Computational Economics, vol. 32(1), pages 99-119, September.
  10. Hynek Lavicka & Tomas Lichard & Jan Novotny, 2014. "Sand in the Wheels or Wheels in the Sand? Tobin Taxes and Market Crashes," CERGE-EI Working Papers wp511, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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