Modelling financial markets with agents competing on different time scales and with different amount of information

Authored by J Wohlmuth, JV Andersen

Date Published: 2006-05-01

DOI: 10.1016/j.physa.2005.08.067

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We use agent-based models to Study the competition among investors who use trading strategies with different amount of information and with different time scales. We find that mixing agents that trade on the same time scale but with different amount of information has a stabilizing impact oil the large and extreme fluctuations of the market. Traders with the most information are Found to be more likely to arbitrage traders who use less information in the decision making. Oil the other hand, introducing investors who act oil two different time scales has a destabilizing effect oil the large and extreme price movements, increasing the volatility of the market. Closeness in time scale used in the decision making is found to facilitate the creation of local trends. The larger the overlap in commonly shared information the more the traders in a mixed system with different time scales are found to profit from the presence of traders acting at another time scale than themselves. (c) 2005 Elsevier B.V. All rights reserved.

Tags

Agent based models hedge funds multi time scale phenomena