Reverse Engineering Financial Markets with Majority and Minority Games Using Genetic Algorithms

J. Wiesinger (), D. Sornette and J. Satinover

Computational Economics, 2013, vol. 41, issue 4, 475-492

Abstract: Using virtual stock markets with artificial interacting software investors, aka agent-based models, we present a method to reverse engineer real-world financial time series. We model financial markets as made of a large number of interacting boundedly rational agents. By optimizing the similarity between the actual data and that generated by the reconstructed virtual stock market, we obtain parameters and strategies, which reveal some of the inner workings of the target stock market. We validate our approach by out-of-sample predictions of directional moves of the Nasdaq Composite Index. Copyright Springer Science+Business Media, LLC. 2013

Keywords: Reverse-engineering; Financial markets; Agent-based models; Genetic algorithms; Forecast; Trading strategies; Market regimes (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10614-011-9312-9

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