IDEAS home Printed from https://ideas.repec.org/p/wop/safire/98-12-114e.html

An Explanation of Generic Behavior in an Evolving Financial Market

Author

Listed:
  • Shareen Joshi
  • Mark A. Bedau

Abstract

The Santa Fe Artificial Stock Market [13, 4] is an agent-based artificial model in which agents continually explore and develop expectational models, buy and sell assets based on the predictions of those models that perform best, and confirm or discard these models based on their performance over time. The purpose of this paper is to classify the different types of behavior that emerge in the market as a function of evolutionary learning rate, and to explain these emergent behaviors. We observe four different types of behavior, which are distinguished by their effects on the volatility of prices, the complexity of strategies, and the wealth earned by agents over time. We also show that the differences between these behaviors may be attributed to variations in the rate at which agents revise their trading rules and the subsequent types of rules---technical or fundamental---that emerge in the market. To appear in Proceedings of Complex Systems '98: Complexity Between the Ecos---from Ecology to Economics.

Suggested Citation

  • Shareen Joshi & Mark A. Bedau, 1998. "An Explanation of Generic Behavior in an Evolving Financial Market," Research in Economics 98-12-114e, Santa Fe Institute.
    • Handle: RePEc:wop:safire:98-12-114e
    as

    Download full text from publisher

    File URL: http://www.santafe.edu/sfi/publications/Working-Papers/98-12-114E.ps
    Download Restriction: no
    File URL: http://www.santafe.edu/sfi/publications/Working-Papers/98-12-114E.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
    2. Arthur, W.B. & Holland, J.H. & LeBaron, B. & Palmer, R. & Tayler, P., 1996. "Asset Pricing Under Endogenous Expectations in an Artificial Stock Market," Working papers 9625, Wisconsin Madison - Social Systems.
    3. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    4. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-411, May.
    5. W. Brian Arthur, 1992. "On Learning and Adaptation in the Economy," Working Paper 854, Economics Department, Queen's University.
    6. G. Caldarelli & M. Marsili & Y. -C. Zhang, 1997. "A Prototype Model of Stock Exchange," Papers cond-mat/9709118, arXiv.org.
    7. Shareen Joshi & Jeffrey Parker & Mark A. Bedau, 1998. "Technical Trading Creates a Prisoner's Dilemma: Results from an Agent-Based Model," Research in Economics 98-12-115e, Santa Fe Institute.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sergio Da Silva, 2004. "International Finance, Levy Distributions, and the Econophysics of Exchange Rates," International Finance 0405018, University Library of Munich, Germany.
    2. Tay, Nicholas S. P. & Linn, Scott C., 2001. "Fuzzy inductive reasoning, expectation formation and the behavior of security prices," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 321-361, March.
    3. Assaf, Ata & Demir, Ender & Ersan, Oguz, 2024. "Detecting and date-stamping bubbles in fan tokens," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 98-113.
    4. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Intrinsic Bubbles: The Case of Stock Prices," American Economic Review, American Economic Association, vol. 81(5), pages 1189-1214, December.
    5. Shively, Philip A., 2007. "Asymmetric temporary and permanent stock-price innovations," Journal of Empirical Finance, Elsevier, vol. 14(1), pages 120-130, January.
    6. Pedersen, Lasse Heje, 2022. "Game on: Social networks and markets," Journal of Financial Economics, Elsevier, vol. 146(3), pages 1097-1119.
    7. Giovanni Carnazza, 2024. "The Impact of the Social Mood on the Italian Sovereign Debt Market: A Twitter Perspective," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 10(1), pages 125-154, March.
    8. Bonnier, Jean-Baptiste, 2021. "Speculation and informational efficiency in commodity futures markets," Journal of International Money and Finance, Elsevier, vol. 117(C).
    9. Michele Vodret & Iacopo Mastromatteo & Bence Tóth & Michael Benzaquen, 2023. "Microfounding GARCH models and beyond: a Kyle-inspired model with adaptive agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 599-625, July.
    10. Zheng Zheng Li & Yidong Xiao & Chi-Wei Su, 2021. "Does COVID-19 Drive Stock Price Bubbles in Medical Mask?," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 2(4), pages 1-6.
    11. Imad A. Moosa, 2020. "The bitcoin: a sparkling bubble or price discovery?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(1), pages 93-113, March.
    12. Bruno S. Frey & Reiner Eichenberger, 1989. "Should Social Scientists Care about Choice Anomalies?," Rationality and Society, , vol. 1(1), pages 101-122, July.
    13. John H. Cochrane, 2008. "The Dog That Did Not Bark: A Defense of Return Predictability," The Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1533-1575, July.
    14. Tim Bollerslev & Robert J. Hodrick, 1992. "Financial Market Efficiency Tests," NBER Working Papers 4108, National Bureau of Economic Research, Inc.
    15. Chen, Xiaoyu & Chiang, Thomas C., 2016. "Stock returns and economic forces—An empirical investigation of Chinese markets," Global Finance Journal, Elsevier, vol. 30(C), pages 45-65.
    16. André Orléan, 1992. "Contagion des opinions et fonctionnement des marchés financiers," Revue Économique, Programme National Persée, vol. 43(4), pages 685-698.
    17. Yadav, Pradeep K., 1992. "Event studies based on volatility of returns and trading volume: A review," The British Accounting Review, Elsevier, vol. 24(2), pages 157-184.
    18. Kelly, Morgan, 1997. "Do Noise Traders Influence Stock Prices?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 351-363, August.
    19. Rothenstein, R & Pawelzik, K, 2003. "Evolution and anti-evolution in a minimal stock market model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 326(3), pages 534-543.
    20. Su, Chi-Wei & Wang, Kai-Hua & Chang, Hsu-Ling & Dumitrescu–Peculea, Adelina, 2017. "Do iron ore price bubbles occur?," Resources Policy, Elsevier, vol. 53(C), pages 340-346.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:safire:98-12-114e. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/epstfus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.