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Risk Aversion Impact on Investment Strategy Performance: A Multi Agent-Based Analysis

Author

Listed:
  • Olivier Brandouy

    (IAE Paris - Sorbonne Business School)

  • Philippe Mathieu
  • Iryna Veryzhenko

    (IAE Paris - Sorbonne Business School)

Abstract

In order to supply an additional evidence on the effect of individual investors preferences on their portfolio dynamics from the wealth and risk adjusted return point of view, we construct an agent-based multi-asset model. We populate the artificial market with heterogeneous mean-variance traders with quadratic utility function. We compare the relative performance of investment strategies differ on their risk preferences using ecological competitions, where populations of artificial investors co-evolve. Our findings show that the higher relative risk aversion helps the agents survive in a long-range time frame in the competitions for higher wealth or Sharpe ratio of constrained portfolios. However, when short-selling is allowed, the highest (as well as lowest) risk aversion does not guarantee the highest earnings. Risk lovers as well as absolute risk averse run quickly out of competitions. Only the traders with moderate level of risk aversion survive in the long run.

Suggested Citation

  • Olivier Brandouy & Philippe Mathieu & Iryna Veryzhenko, 2012. "Risk Aversion Impact on Investment Strategy Performance: A Multi Agent-Based Analysis," Post-Print halshs-02048765, HAL.
    • Handle: RePEc:hal:journl:halshs-02048765
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    References listed on IDEAS

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    1. Chueh-Yung Tsao & Ya-Chi Huang, 2018. "Revisiting the issue of survivability and market efficiency with the Santa Fe Artificial Stock Market," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(3), pages 537-560, October.
    2. Juan Mascare as & Fangyuan Yan, 2017. "How People Apply Mental Accounting Philosophy to Investment Risk?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 145-151.

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