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The value of information in a multi-agent market model

B. Tóth (), Enrico Scalas, J. Huber and Michael Kirchler

The European Physical Journal B: Condensed Matter and Complex Systems, 2007, vol. 55, issue 1, 115-120

Abstract: We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic relationship of net returns of traders as a function of information levels, both in the experiments and in the simulations. Particularly, averagely informed traders perform worse than the non informed and only traders with high levels of information (insiders) are able to beat the market. The simulations and the experiments reproduce many stylized facts of tick-by-tick stock-exchange data, such as fast decay of autocorrelation of returns, volatility clustering and fat-tailed distribution of returns. These results have an important message for everyday life. They can give a possible explanation why, on average, professional fund managers perform worse than the market index. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

Keywords: 89.65.Gh Economics; econophysics, financial markets, business and management, 89.65.-s Social and economic systems, 89.70.+c Information theory and communication theory, 89.75.-k Complex systems, (search for similar items in EconPapers)
Date: 2007
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Working Paper: The value of information in a multi-agent market model (2007) Downloads
Working Paper: The value of information in a multi-agent market model (2006) Downloads
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DOI: 10.1140/epjb/e2007-00046-2

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