Munich Personal RePEc Archive

Can Prospect Theory Explain Market Calendar Effects?

Mayo, Robert (2013): Can Prospect Theory Explain Market Calendar Effects?

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Abstract

The purpose of this project is to determine if calendar effects observed in stock markets can be explained by prospect theory. In order to answer this question, I have created an agent based model simulating a stock market. There was no sign of any calendar effect in any of the configurations tested to a very high degree of confidence. In addition, there was no obvious difference in the market results generated between optimizing traders following multiple complex strategies and simple zero intelligence traders constrained only by their respective liquidity.

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