Asymmetric rate of returns and wealth distribution influenced by the introduction of technical analysis into a behavioral agent-based model

F.M. Stefan and A.P.F. Atman

Physica A: Statistical Mechanics and its Applications, 2023, vol. 630, issue C

Abstract: Behavioral Finance has become a challenge to the scientific community. Based on the assumption that behavioral aspects of investors may explain some features of the Stock Market, we propose an agent-based model to study quantitatively this relationship. In order to approximate the simulated market to the complexity of real markets, we consider that the investors are connected among them through a Scale-Free network; each one of the investors has his own psychological profile (Imitation, Anti-Imitation, Random); two different strategies for decision making: one of them is based on the trust neighborhood of the investor and the other one considers a technical analysis, the momentum of the market index technique. We analyze the market index fluctuations, the wealth distribution of the investors according to their psychological profiles and the rate of returns distribution. Moreover, we analyze the influence of changing the psychological profile of the hub of the network and report interesting results which show how and when anti-imitation becomes the most profitable strategy for investment. Besides this, an intriguing asymmetry of the rate of returns distribution is explained considering the behavioral aspect of the investors. This asymmetry is quite robust, being observed even when a completely different algorithm to calculate the decision making of the investors was applied to it, a remarkable result which, up to our knowledge, has never been reported before.

Keywords: Behavioral finance; Agent-based models; Complex networks; Technical analysis (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:630:y:2023:i:c:s0378437123008191

DOI: 10.1016/j.physa.2023.129264

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