TRADER DYNAMICS IN A MODEL MARKET

Neil F. Johnson (), Michael Hart, Pak Ming Hui () and Dafang Zheng ()
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Neil F. Johnson: Physics Department, Oxford University, Parks Road, Oxford, OX1 3PU, UK
Michael Hart: Physics Department, Oxford University, Parks Road, Oxford, OX1 3PU, UK
Pak Ming Hui: Department of Physics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong, People's Republic of China
Dafang Zheng: Department of Applied Physics, South China University of Technology, Guangzhou 510641, People's Republic of China

International Journal of Theoretical and Applied Finance (IJTAF), 2000, vol. 03, issue 03, 443-450

Abstract: We explore various extensions of Challet and Zhang's Minority Game in an attempt to gain insight into the dynamics underlying financial markets. First we consider a heterogeneous population where individual traders employ differing "time horizons" when making predictions based on historical data. The resulting average winnings per trader is a highly non-linear function of the population's composition. Second, we introduce a threshold confidence level among traders below which they will not trade. This can give rise to large fluctuations in the "volume" of market participants and the resulting market "price".

Date: 2000
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DOI: 10.1142/S0219024900000358

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