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Bsv Investors Versus Rational Investors: An Agent-Based Computational Finance Model

Author

Listed:
  • WEI ZHANG

    (School of Management, Tianjin University, Tianjin, 300072, China;
    Tianjin University of Finance and Economics, Tianjin, 300222, China)

  • YONGJIE ZHANG

    (School of Management, Tianjin University, Tianjin, 300072, China)

  • XIONG XIONG

    (School of Management, Tianjin University, Tianjin, 300072, China)

  • XI JIN

    (Department of Finance, Tianjin University of Finance and Economics, Tianjin, 300222, China)

Abstract

BSV (Barberis, Shleifer and Vishny [Journal of Financial Economics49(1998) 307–343]) model is one of the three major behavioral finance models. The existing BSV model is about how behavioral investors form beliefs, and is able to produce both overreaction and mean-reversion for a wide range of parameter values. However, the assumption that all investors in the market must all be BSV investors is a little strict and remains controversial. In this paper, we present an agent-based computational model of the dynamic game between BSV investors and rational investors. Time series from the artificial stock market are analyzed and two interesting findings are reported. First, the introduction of rational investors will not eliminate the anomalies of overreaction and mean-reversion. Second, no evidence is found that the BSV investors will lose money to their counterparts although their cognitive bias makes them form a false kind of expectation. On the contrary, some weak evidence is reported that BSV investors are less likely to bankrupt.

Suggested Citation

  • Wei Zhang & Yongjie Zhang & Xiong Xiong & Xi Jin, 2006. "Bsv Investors Versus Rational Investors: An Agent-Based Computational Finance Model," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 455-466.
    • Handle: RePEc:wsi:ijitdm:v:05:y:2006:i:03:n:s0219622006002052
    DOI: 10.1142/S0219622006002052
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    References listed on IDEAS

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    1. De Long, J Bradford & Shleifer, Andrei & Summers, Lawrence H & Waldmann, Robert J, 1991. "The Survival of Noise Traders in Financial Markets," The Journal of Business, University of Chicago Press, vol. 64(1), pages 1-19, January.
    2. Levy, Haim & Levy, Moshe & Solomon, Sorin, 2000. "Microscopic Simulation of Financial Markets," Elsevier Monographs, Elsevier, edition 1, number 9780124458901.
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    Cited by:

    1. Hai-Chuan Xu & Wei Zhang & Xiong Xiong & Wei-Xing Zhou, 2014. "Wealth Share Analysis with “Fundamentalist/Chartist” Heterogeneous Agents," Abstract and Applied Analysis, Hindawi, vol. 2014, pages 1-11, May.
    2. Ruwei Zhao & Xiong Xiong & Dehua Shen & Wei Zhang, 2019. "Investor Structure and Stock Price Crash Risk in a Continuous Double Auction Market: An Agent-Based Perspective," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(02), pages 695-715, March.

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