The Effectiveness Of Different Trading Strategies For Price-Takers

Lyudmila Egorova ()

HSE Working papers from National Research University Higher School of Economics

Abstract: Simulation models of the stock exchange are developed to explore the dependence between a trader’s ability to predict future price movements and her wealth and probability of bankruptcy, to analyze the consequences of margin trading with different leverage rates and to compare different investment strategies for small traders. We show that in the absence of margin trading the rate of successful predictions should be slightly higher than 50% to guarantee with high probability that the final wealth is greater than the initial and to assure very little probability of bankruptcy, and such a small value explains why so many people try to trade on the stock exchange. However if trader uses margin trading, this rate should be much higher and high rate leads to the risk of excessive losses.

Keywords: agent-based system; simulation; stock exchange; trading strategies. (search for similar items in EconPapers)
JEL-codes: G02 G17 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014
New Economics Papers: this item is included in nep-cmp, nep-mst and nep-rmg
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Published in WP BRP Series: Financial Economics / FE, April 2014, pages - 30

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:29/fe/2014

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