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Beat The Market

Author

Listed:
  • Fan Wang

    (Stony Brook University, JP Morgan Chase & Co.)

Abstract

Speculation in asset market is modelled as a stochastic betting game played by finite number of players and repeated infinite times. With stochastic asset return and unkown quality of public signal, a generic adaptive learning rule is proposed and the corresponding evolutionary dynamics is analyzed. The impact of historical events on players' belief decays over time. It is proved to be a robust approach to adapt to stochastic regime shifts in the market. The market dynamics has characteristics, i.e. endogenous boom-bust cycle, positive correlation in return and volume, and negative first order autocorrelation in return series, commonly observed in financial market but inexplicable by conventional rational expectations theory.

Suggested Citation

  • Fan Wang, 2005. "Beat The Market," Game Theory and Information 0507006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0507006
    Note: Type of Document - pdf; pages: 21
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/game/papers/0507/0507006.pdf
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    More about this item

    Keywords

    Evolutionary Dynamics; Adaptive Learning; Behavioral Finance;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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