Trading on Marginal Information

Florian Hauser () and Bob Kaempff
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Florian Hauser: Innsbruck University School of Management

A chapter in Progress in Artificial Economics, 2010, pp 15-26 from Springer

Abstract: Abstract We present an agent-based simulation of a financial market with heterogeneously informed agents based on a model proposed by Schredelseker (2001). By introducing a modified fundamental trading strategy we extend the model and show that this strategy is a superior choice for most agents in the market. The modified fundamental strategy is characterized by giving more weight to the marginal piece of information an agent receives. We show that this protects agents from making joint mistakes with other market participants and suffering from a herding effect. We also observe that informational efficiency of market prices increases when agents adopt the modified trading strategy.

Keywords: Market Price; Trading Strategy; Risky Asset; Reservation Price; Marginal Signal (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-13947-5_2

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DOI: 10.1007/978-3-642-13947-5_2

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