Emergence of trend trading and its effects in minority game

Xing-Hua Liu, Xiao-Bei Liang and Nai-Jing Wang

Physica A: Statistical Mechanics and its Applications, 2006, vol. 369, issue 2, 771-779

Abstract: In this paper, we extended Minority Game (MG) by equipping agents with both value and trend strategies. In the new model, agents (we call them strong-adaptation agents) can autonomically select to act as trend trader or value trader when they game and learn in system. So the new model not only can reproduce stylized factors but also has the potential to investigate into the process of some problems of securities market. We investigated the dynamics of trend trading and its impacts on securities market based on the new model. Our research found that trend trading is inevitable when strong-adaptation agents make decisions by inductive reasoning. Trend trading (of strong-adaptation agents) is not irrational behavior but shows agent's strong-adaptation intelligence, because strong-adaptation agents can take advantage of the pure value agents when they game together in hybrid system. We also found that strong-adaptation agents do better in real environment. The results of our research are different with those of behavior finance researches.

Keywords: Complex adaptive systems; Agent-based modeling; Securities market; Trend trading; Minority game (search for similar items in EconPapers)
Date: 2006
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:369:y:2006:i:2:p:771-779

DOI: 10.1016/j.physa.2006.01.089

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