Turnover, account value and diversification of real traders: evidence of collective portfolio optimizing behavior

Authored by Damien Challet, David Morton de Lachapelle

Date Published: 2010-07-30

DOI: 10.1088/1367-2630/12/7/075039

Sponsors: Swissquote Bank

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Despite the availability of very detailed data on financial markets, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus reverse-engineering attempts. This work is a contribution towards building a set of stylized facts about the traders themselves. Using the client database of Swissquote Bank SA, the largest online Swiss broker, we find empirical relationships between turnover, account values and the number of assets in which a trader is invested. A theory based on simple mean-variance portfolio optimization that crucially includes variable transaction costs is able to reproduce faithfully the observed behaviors. We finally argue that our results bring to light the collective ability of a population to construct a mean-variance portfolio that takes into account the structure of transaction costs.

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