Trading Induces Efficient Adaptive Control

Abstract

Event Abstract Back to Event Trading Induces Efficient Adaptive Control Klaus Pawelzik1, 2* 1 Centre for Cognitive Sciences, Germany 2 University of Bremen, Institute for Theoretical Physics, Germany Financial markets are believed to be efficient in incorporating available knowledge into the prices such that this information cannot be used for realizing arbitrage profits. While it is a truism that traders who are able to anticipate future price changes tend to suppress predictable price fluctuations it is not clear if, by which mechanisms, and to what extent ensembles of traders with individually very limited forecast abilities could contribute to market efficiency. Here, the emergence of market efficiency is formulated as adaptive control of predictable price changes in a market model containing speculative agents with fixed linear prediction facilities. Simulations of the model show that the redistribution of money and stocks via trading is sufficient to adapt the order sizes of speculative agents such that their collective effect on the price dynamics counterbalances the effects of predictable orders also if their dependence on available information is nonlinear. In fact, mathematical analysis of the model reveals that it can in fact solve any smooth and bounded control problem. We also find that scaling of order sizes by success is analogous to self-supervised on-line learning in neural networks. These results suggest that the efficiency observed in financial markets might to a large extent originate from the self-organization of order sizes in ensembles of very simple minded speculative traders. Conference: Computations, Decisions and Movement, Giessen, Germany, 19 May - 22 May, 2010. Presentation Type: Poster Presentation Topic: Posters Citation: Pawelzik K (2010). Trading Induces Efficient Adaptive Control. Front. Comput. Neurosci. Conference Abstract: Computations, Decisions and Movement. doi: 10.3389/conf.fnins.2010.01.00017 Copyright: The abstracts in this collection have not been subject to any Frontiers peer review or checks, and are not endorsed by Frontiers. They are made available through the Frontiers publishing platform as a service to conference organizers and presenters. The copyright in the individual abstracts is owned by the author of each abstract or his/her employer unless otherwise stated. Each abstract, as well as the collection of abstracts, are published under a Creative Commons CC-BY 4.0 (attribution) licence (https://creativecommons.org/licenses/by/4.0/) and may thus be reproduced, translated, adapted and be the subject of derivative works provided the authors and Frontiers are attributed. For Frontiers’ terms and conditions please see https://www.frontiersin.org/legal/terms-and-conditions. Received: 02 Feb 2010; Published Online: 02 Feb 2010. * Correspondence: Klaus Pawelzik, Centre for Cognitive Sciences, Bremen, Germany, pawelzik@neuro.uni-bremen.de Login Required This action requires you to be registered with Frontiers and logged in. To register or login click here. Abstract Info Abstract The Authors in Frontiers Klaus Pawelzik Google Klaus Pawelzik Google Scholar Klaus Pawelzik PubMed Klaus Pawelzik Related Article in Frontiers Google Scholar PubMed Abstract Close Back to top Javascript is disabled. Please enable Javascript in your browser settings in order to see all the content on this page.