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Trading on Marginal Information

In: Progress in Artificial Economics

Author

Listed:
  • Florian Hauser

    (Innsbruck University School of Management)

  • Bob Kaempff

    (Innsbruck University School of Management)

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.

Suggested Citation

  • Florian Hauser & Bob Kaempff, 2010. "Trading on Marginal Information," Lecture Notes in Economics and Mathematical Systems, in: Marco Li Calzi & Lucia Milone & Paolo Pellizzari (ed.), Progress in Artificial Economics, pages 15-26, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-13947-5_2
    DOI: 10.1007/978-3-642-13947-5_2
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    Cited by:

    1. Florian Hauser & Jürgen Huber & Bob Kaempff, 2015. "Costly Information in Markets with Heterogeneous Agents: A Model with Genetic Programming," Computational Economics, Springer;Society for Computational Economics, vol. 46(2), pages 205-229, August.

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