Agent-Based Artificial Financial Market

Abstract

In this paper, we study the agent modelling in an artificial stock market. In an artificial stock market, we consider two broad types of agents, “rational traders” and “imitators”. Rational traders trade to optimize their short-term profit and imitators invest based on the trend follow strategy. We examine how the coexistence of rational and irrational traders affect stock prices and their long run performance. We show the performances of these traders depend on their ratio in the market. In the region where rational traders are in the minority, they can come to win the market, in that they eventually have a high share of wealth. On the other hand, in the region where rational traders are in the majority, imitators can come to win the market. We conclude that the survival in a finance market is a kind of the minority game, and mimic traders (noise traders) might survive and come to win.