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Trader Species With Different Decision Strategies And Price Dynamics In Financial Markets: An Agent-Based Modeling Perspective

Author

Listed:
  • WEI ZHANG

    (School of Management, Tianjin University, Tianjin 300072, China;
    Tianjin University of Finance, and Economics, Tianjin 300222, China)

  • GEN LI

    (School of Management, Tianjin University, Tianjin 300072, China)

  • XIONG XIONG

    (School of Management, Tianjin University, Tianjin 300072, China)

  • YONG JIE ZHANG

    (School of Management, Tianjin University, Tianjin 300072, China)

Abstract

Investors with different trading strategies can be viewed as different "species" in financial markets. Since the asset price is ultimately determined by the individual trading decisions, the combination and evolution of different trader species in financial market ecology will have great impact to the price dynamics. Considering the limitations and shortcomings of traditional analytical approaches in financial economics in dealing with this issue, an agent-based computational model is introduced in this paper. With the co-existence of 3-type trader species that make different decisions based on their own beliefs and constrains, it is found that although rational speculation destabilizes the price process with the presence of positive feedback strategy, as suggested in the literature, introducing extra noise trading behavior to the market will make the price process back to a more stationary situation, meaning that the market will be healthier if more diversified trader species co-exist in the markets.

Suggested Citation

  • Wei Zhang & Gen Li & Xiong Xiong & Yong Jie Zhang, 2010. "Trader Species With Different Decision Strategies And Price Dynamics In Financial Markets: An Agent-Based Modeling Perspective," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 327-344.
    • Handle: RePEc:wsi:ijitdm:v:09:y:2010:i:02:n:s0219622010003841
    DOI: 10.1142/S0219622010003841
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    Cited by:

    1. He, Zhou & Cheng, T.C.E. & Dong, Jichang & Wang, Shouyang, 2016. "Evolutionary location and pricing strategies for service merchants in competitive O2O markets," European Journal of Operational Research, Elsevier, vol. 254(2), pages 595-609.
    2. Ruwei Zhao & Xiong Xiong & Dehua Shen & Wei Zhang, 2019. "Investor Structure and Stock Price Crash Risk in a Continuous Double Auction Market: An Agent-Based Perspective," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(02), pages 695-715, March.
    3. Ke Liu & Kin Keung Lai & Jerome Yen & Qing Zhu, 2017. "Model of Bias-Driven Trend Followers and Interaction with Manipulators," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 573-590, March.

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