EconPapers    
Economics at your fingertips  
 

Heterogeneous Agents Model with the Worst Out Algorithm

Miloslav Vošvrda and Lukas Vacha

Czech Economic Review, 2007, vol. 1, issue 1, 54-66

Abstract: Heterogeneous agents’ model with the stochastic beliefs formation is considered. Fundamentalists rely on their model employing fundamental information basis to forecast the next price period. Chartists determine whether current conditions call for the acquisition of fundamental information in a forward looking manner rather than relying on the past performance. It was shown that implementation of the agents memory can significantly change the preferences of trader strategies. The Worst out Algorithm (WOA) is used with considered heterogeneous agents’ model to simulate more realistic market conditions. The WOA replaces periodically the trading strategy that has the lowest performance level of all strategies presented on the market by the new one. The memory length of the new strategy that enters the market has the same stochastic structure as the initial strategies. This paper shows an influence of the agent memory as a stochastic process on the heterogeneous agents model with the WOA. Simulations show difference in price returns behaviour between two types of agents’ memory length distribution functions (Uniform and Normal). There is a significant difference in the values of the Hurst exponent and the variance in these two cases. A lower Hurst exponent in the uniform case is caused by a richer spectrum of agents’ memory length, because agents are equally distributed across all trading horizons. For the uniform case there is no opportunity for any prediction. On the other hand, the value of the Hurst exponent gives a signal for a possibility of the price prediction in the normal case.

Keywords: Efficient Markets Hypothesis; Fractal Market Hypothesis; agents’ investment horizons; agents’ trading strategies; technical trading rules; heterogeneous agent model with stochastic memory; Worst out Algorithm (search for similar items in EconPapers)
JEL-codes: C61 D84 G14 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://auco.fsv.cuni.cz/storage/16_2007_01_054.pdf (application/pdf)

Related works:
Working Paper: Heterogeneous Agents Model with the Worst Out Algorithm (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:aucocz:au2007_054

Ordering information: This journal article can be ordered from
http://auco.cuni.cz/

Access Statistics for this article

More articles in Czech Economic Review from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Lenka Stastna ().

 
Page updated 2024-04-28
Handle: RePEc:fau:aucocz:au2007_054