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Beat The Market


  • Fan Wang

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


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, EconWPA.
  • Handle: RePEc:wpa:wuwpga:0507006
    Note: Type of Document - pdf; pages: 21

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    References listed on IDEAS

    1. Michele Polo, "undated". "Electoral competition and political rents," Working Papers 144, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. AlÌcia Adserý, 2003. "Are You Being Served? Political Accountability and Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 19(2), pages 445-490, October.
    3. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    4. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, March.
    5. Caselli, Francesco & Morelli, Massimo, 2004. "Bad politicians," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 759-782, March.
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    More about this item


    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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