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Emergence of trend trading and its effects in minority game

Author

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  • Liu, Xing-Hua
  • Liang, Xiao-Bei
  • Wang, Nai-Jing

Abstract

In this paper, we extended Minority Game (MG) by equipping agents with both value and trend strategies. In the new model, agents (we call them strong-adaptation agents) can autonomically select to act as trend trader or value trader when they game and learn in system. So the new model not only can reproduce stylized factors but also has the potential to investigate into the process of some problems of securities market. We investigated the dynamics of trend trading and its impacts on securities market based on the new model. Our research found that trend trading is inevitable when strong-adaptation agents make decisions by inductive reasoning. Trend trading (of strong-adaptation agents) is not irrational behavior but shows agent's strong-adaptation intelligence, because strong-adaptation agents can take advantage of the pure value agents when they game together in hybrid system. We also found that strong-adaptation agents do better in real environment. The results of our research are different with those of behavior finance researches.

Suggested Citation

  • Liu, Xing-Hua & Liang, Xiao-Bei & Wang, Nai-Jing, 2006. "Emergence of trend trading and its effects in minority game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 771-779.
    • Handle: RePEc:eee:phsmap:v:369:y:2006:i:2:p:771-779
    DOI: 10.1016/j.physa.2006.01.089
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    Cited by:

    1. Liu, Xinghua & Gregor, Shirley & Yang, Jianmei, 2008. "The effects of behavioral and structural assumptions in artificial stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(11), pages 2535-2546.

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