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The value of information in a multi-agent market model

Bence Toth, Enrico Scalas, Juergen Huber and Michael Kirchler

MPRA Paper from University Library of Munich, Germany

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 stock markets, 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.

Keywords: Economics; econophysics; financial markets; business and management; information theory and communication theory (search for similar items in EconPapers)
JEL-codes: C00 C63 G14 (search for similar items in EconPapers)
Date: 2006-10-04
New Economics Papers: this item is included in nep-cmp, nep-fin and nep-fmk
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Related works:
Journal Article: The value of information in a multi-agent market model (2007) Downloads
Working Paper: The value of information in a multi-agent market model (2007) Downloads
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