Fundamental traders' ‘tragedy of the commons’: Information costs and other determinants for the survival of experts and noise traders in financial markets

Björn-Christopher Witte

Economic Modelling, 2013, vol. 32, issue C, 377-385

Abstract: This study explores the long-standing question about the survival of noise traders in financial markets through the relatively new method of agent-based modeling. We find that, in the normal case, there are two attractors for the ratio of experts versus noise traders. Either experts disappear almost entirely from the market, or they account for a certain fraction, with noise traders still being present. In the dynamic framework, the dynamics switches between these attractors, which leads to the emergence of some typical statistical features of financial markets, such as long memory, leptokurtic returns, and bubbles and crashes. Furthermore, we achieve a general approximation of the attractors and of the switching point in between from relevant determinants.

Keywords: Information costs; Noise trader; Fundamental analysis; Agent-based modeling (search for similar items in EconPapers)
JEL-codes: C15 D53 D82 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:32:y:2013:i:c:p:377-385

DOI: 10.1016/j.econmod.2013.02.030

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