Effects of Common Factors on Dynamics of Stocks Traded by Investors with Limited Information Capacity

Authored by Songtao Wu, Jianmin He, Chao Wang

Date Published: 2017

DOI: 10.1155/2017/6831596

Sponsors: Chinese National Natural Science Foundation

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

An artificial stock market with agent-based model is built to investigate effects of different information characteristics of common factors on the dynamics stock returns. Investors with limited information capacity update their beliefs based on the information they have obtained and processed and optimize portfolios based on beliefs. We find that with changing of concerned information characteristics the uncertainty of stock price returns rises and is higher than the uncertainty of intrinsic value returns. However, this increase is constrained by the limited information capacity of investors. At the same time, we also find that dependence between returns of stock prices also increased with the changing information environment. The uncertainty and dependency pertaining to prices show a positive relationship. However, the positive relationship is weakened when taking into account the features of intrinsic values, based on which prices are generated.

Tags

behavior time-series Expectations Efficiency Financial-markets Returns Cross-section Attention