The value of information in a multi-agent market model

Toth, Bence; Scalas, Enrico; Huber, Juergen and Kirchler, Michael (2006): The value of information in a multi-agent market model. Unpublished.

Abstract

We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic relationship of net returns of traders as a function of information levels, both in the experiments and in the simulations. Particularly, averagely informed traders perform worse than the non informed and only traders with high levels of information (insiders) are able to beat the market. The simulations and the experiments reproduce many stylized facts of stock markets, such as fast decay of autocorrelation of returns, volatility clustering and fat-tailed distribution of returns. These results have an important message for everyday life. They can give a possible explanation why, on average, professional fund managers perform worse than the market index.

• Item Type: MPRA Paper
• Additional Information: Paper submitted to the European Physical Journal B
• Language: English
• Keywords: Economics; econophysics; financial markets; business and management; information theory and communication theory
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C63 - Computational Techniques; Simulation Modeling ; C - Mathematical and Quantitative Methods > C0 - General > C00 - General; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies

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