The value of information in financial markets: An agent-based simulation

Bence Toth and Enrico Scalas

Papers from arXiv.org

Abstract: We present results on simulations of a stock market with heterogeneous, cumulative information setup. We find a non-monotonic behaviour of traders' returns as a function of their information level. Particularly, the average informed agents underperform random traders; only the most informed agents are able to beat the market. We also study the effect of a strategy updating mechanism, when traders have the possibility of using other pieces of information than the fundamental value. These results corroborate the latter ones: it is only for the most informed player that it is rewarding to stay fundamentalist. The simulations reproduce some stylized facts of tick-by-tick stock-exchange data and globally show informational efficiency.

Date: 2007-12
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