Artificial Stock Market Research Articles

Statistical Facts of Artificial Stock Market

The paper reports the construction of artificial stock market that emerges the similar statistical facts with real data in Indonesian stock market. We use the individual but dominant data, i.e.: PT TELKOM in hourly interval. The artificial stock market shows standard statistical facts, e.g.: volatility clustering, the excess kurtosis of the distribution of return, and the scaling properties with its breakdown in the crossover of Levy distribution to the Gaussian one. From this point, the artificial stock market will always be evaluated in order to have comprehension about market process in Indonesian stock market generally.

MODELING STOCK MARKET BASED ON GENETIC CELLULAR AUTOMATA

An artificial stock market is established with the modeling method and ideas of cellular automata. Cells are used to represent stockholders, who have the capability of self-teaching and are affected by the investing history of the neighboring ones. The neighborhood relationship among the stockholders is the expanded Von Neumann relationship, and the interaction among them is realized through selection operator and crossover operator. Experiment shows that the large events are frequent in the fluctuations of the stock price generated by the artificial stock market when compared with a normal process and the price returns distribution is a Lévy distribution in the central part followed by an approximately exponential truncation.

A Study of Neo-Austrian Economics Using an Artificial Stock Market

An agent-based artificial financial market (AFM) is used to study market efficiency and learning in the context of the Neo-Austrian economic paradigm. Efficiency is defined in terms of the excess profits associated with different trading strategies, where excess is defined relative to a dynamic buy and hold benchmark in order to make a clean separation between trading gains and market gains. We define an Inefficiency matrix that takes into account the difference in excess profits of one trading strategy versus another (signal) relative to the standard error of those profits.

MULTI-AGENT-BASED MODELING OF ARTIFICIAL STOCK MARKETS BY USING THE CO-EVOLUTIONARY GP APPROACH

This paper deals with multi-agent based modeling of artificial stock market by using the co- evolutionary Genetic Programming (GP) by considering social learning. Cognitive behaviors of agents are modeled by using the GP to introduce social learning as well as individual learning. Assuming five types of agents, in which rational agents prefer forecast models (equations) or production rules to support their decision making, and irrational agents select decisions at random like a speculator. Rational agents usually use their own knowledge base, but some of them utilize their public (common) knowledge base to improve trading decisions. By using the result of simulation studies on artificial market, it is shown that the time series for stock price is resemble to real stock price statistically. It is also shown that the lack of social learning leads the system to a very monotone market, and only a simple behavior of the market is realized. Moreover, we can see the effectiveness of classifier systems where we utilize a pool of decision rules in which not only prominent but also rules having potential rewards in fluctuating environment. It is also seen that the growth of wealth of irrational agent is almost always better than rational agents even though they analyze and behaves on reasonable decision. The result provide us the way to analyze real market where traders usually use social learning and environment-dependent rules.

Who wins? Study of long-run trader survival in an artificial stock market

We introduce a multi-asset artificial financial market with finite amount of cash and number of stocks. The background trading is characterized by a random trading strategy constrained by the finiteness of resources and by market volatility. Stock price processes exhibit volatility clustering, fat-tailed distribution of returns and reversion to the mean. Three active trading strategies have been introduced and studied in two different market conditions: steady market and growing market with asset inflation. We show that the profitability of each strategy depends both on the periodicity of portfolio reallocation and on the market condition. The best performing strategy is the one that exploits the mean reversion characteristic of asset price processes.

Traders' Long-Run Wealth in an Artificial Financial Market

In this paper, we study the long-run wealth distribution of agents with different trading strategies in the framework of the Genoa Artificial Stock Market. The Genoa market is an agent-based simulated market able to reproduce the main stylised facts observed in financial markets, i.e., fat-tailed distribution of returns and volatility clustering. Various populations of traders have been introduced in a 'thermal bath' made by random traders who make random buy and sell decisions constrained by the available limited resources and depending on past price volatility. We study both trend following and trend contrarian behaviour; fundamentalist traders (i.e., traders believing that stocks have a fundamental price depending on factors external to the market) are also investigated. Results show that the strategy alone does not allow forecasting which population will prevail. Trading strategies yield different results in different market conditions. Generally, in a closed market (a market with no money creation process), we find that trend followers lose relevance and money to other populations of traders and eventually disappear, whereas in an open market (a market with money inflows), trend followers can survive, but their strategy is less profitable than the strategy of other populations.

CONSTRUCTION AND ANALYSIS OF STOCK MARKET MODEL USING ADG: AUTOMATICALLY DEFINED GROUPS

In real market, the squares of stock price change rates have high autocorrelation, and the change rates show high peak and fat tail distribution. With the aim of analyzing the mechanism of the stock price change, we construct an artificial stock market composed of multiple agents whose investment strategies are represented by tree-shaped programs. The market is optimized by using a Genetic Programming so that the change of its stock price resembles that of "real" stock market statistically. In order to perform an efficient optimization and to analyze agents' behavior easily, we use ADG; Automatically Defined Groups previously proposed by authors. We show experimentally that complex changes such as real market appear in the proposed artificial market. Moreover we analyze the interaction of agents which causes realistic stock price changes.

Agent-Based Modeling

The Santa Fe Artificial Stock Market (ASM) is a well-known agent-based model. A new revision of the code (ASM-2.2) is now available. This article describes some of the changes that were made in the code base and also presents some important lessons for agent-based modelers that can be illustrated with the code. Because the code is available on the Internet, it is hoped that this discussion and the code base it represents will be helpful to people who are planning projects in the field of agent-based modeling.

On the emergent properties of artificial stock markets: the efficient market hypothesis and the rational expectations hypothesis

By studying two well known hypotheses in economics, this paper illustrates how emergent properties can be shown in an agent-based artificial stock market. The two hypotheses considered are the efficient market hypothesis and the rational expectations hypothesis. We inquire whether the macrobehavior depicted by these two hypotheses is consistent with our understanding of the microbehavior. In this agent-based model, genetic programming is applied to evolving a population of traders learning over time. We first apply a series of econometric tests to show that the EMH and the REH can be satisfied with some portions of the artificial time series. Then, by analyzing traders’ behavior, we show that these aggregate results cannot be interpreted as a simple scaling-up of individual behavior. A conjecture based on sunspot-like signals is proposed to explain why macrobehavior can be very different from microbehavior. We assert that the huge search space attributable to genetic programming can induce sunspot-like signals, and we use simulated evolved complexity of forecasting rules and Granger causality tests to examine this assertion.

The Santa Fe Artificial Stock Market Re-Examined - Suggested Corrections

This paper rectifies a design problem in the Santa Fe Artificial Stock Market Model. Due to a faulty mutation operator, the resulting bit distribution in the classifier system was systematically upwardly biased, thus suggesting increased levels of technical trading for smaller GA-invocation intervals. The corrected version partly supports the Marimon-Sargent-Hypothesis that adaptive classifier agents in an artificial stock market will always discover the homogeneous rational expectation equilibrium. While agents always find the correct solution of non-bit usage, analyzing the time series data still suggests the existence of two different regimes depending on learning speed. Finally, classifier systems and neural networks as data mining techniques in artificial stock markets are discussed.

Financial Markets can be at Sub-Optimal Equilibria

We use game theory and Santa Fe Artificial Stock Market, an agent-based model of an evolving stock market, to study the optimal frequency for traders to revise their market forecasting rules. We discover two things: There is a unique strategic Nash equilibrium in the game of choosing forecast revision rates, and this equilibrium is sub-optimal in the sense that traders' earnings are not maximized an the market is inefficient. This strategic equilibrium is due to an analogue of the prisoner's dilemma; the optimal global state is unstable because each trader has too much incentive to `defect' and use forecasting rules that pull the market into thesub-optimal equilibrium.

Learning and Exploiting Context in Agents

The use of context can considerably facilitate reasoning by restricting the beliefs reasoned upon to those relevant and providing extra information specific to the context. Despite the use and formalization of context being extensively studied both in AI and ML, context has not been much utilized in agents. This may be because many agents are only applied in a single context, and so these aspects are implicit in their design, or it may be that the need to explicitly encode information about various contexts is onerous. An algorithm to learn the appropriate context along with knowledge relevant to that context gets around these difficulties and opens the way for the exploitation of context in agent design. The algorithm is described and the agents compared with agents that learn and apply knowledge in a generic way within an artificial stock market. The potential for context as a principled manner of closely integrating crisp reasoning and fuzzy learning is discussed.

Fuzzy Inductive Reasoning and Nonlinear Dependence in Security Returns: Results from an Artificial Stock Market Environment

We present an examination of security returns generated in an artificial stock market. The market is populated by traders who reason inductively while compressing information into a few fuzzy notions which they can in turn process and analyze with fuzzy logic. We demonstrate that nonlinear return dependence is present even after we have controlled for ARCH effects in the simulated data and that these results are similar to those found in an examination of the actual returns of two actively traded stocks used as case studies. We conclude that the model we present provides an explanation for nonlinearities observed in US stock returns. The appeal of the model is its close ties to evidence on how individuals actually reason.

Evolving traders and the business school with genetic programming: A new architecture of the agent-based artificial stock market

In this paper, we propose a new architecture to study artificial stock markets. This architecture rests on a mechanism called ‘school’ which is a procedure to map the phenotype to the genotype or, in plain English, to uncover the secret of success. We propose an agent-based model of ‘ school’, and consider school as an evolving population driven by single-population GP (SGP). The architecture also takes into consideration traders’ search behavior. By simulated annealing, traders’ search density can be connected to psychological factors, such as peer pressure or economic factors such as the standard of living. This market architecture was then implemented in a standard artificial stock market. Our econometric study of the resultant artificial time series evidences that the return series is independently and identically distributed (iid), and hence supports the efficient market hypothesis (EMH). What is interesting though is that this iid series was generated by traders, who do not believe in the EMH at all. In fact, our study indicates that many of our traders were able to find useful signals quite often from business school, even though these signals were short-lived.

Fuzzy inductive reasoning, expectation formation and the behavior of security prices

This paper extends the Santa Fe Artificial Stock Market Model (SFASM) studied by LeBaron, Arthur and Palmer (1999, Journal of Economic Dynamics and Control 23, 1487–1516) in two important directions. First, some might question whether it is reasonable to assume that traders are capable of handling a large number of rules, each with numerous conditions, as is assumed in the SFASM. We demonstrate that similar results can be obtained even after severely limiting the reasoning process. We show this by allowing agents the ability to compress information into a few fuzzy notions which they can in turn process and analyze with fuzzy logic. Second, LeBaron et al. have reported that the kurtosis of their simulated stock returns is too small as compared to real data. We demonstrate that with a minor modification to how traders go about deciding which of their prediction rules to rely on when making demand decisions, the model can in fact produce return kurtosis that is comparable to that of actual returns data.

Time series properties of an artificial stock market

This paper presents results from an experimental computer simulated stock market. In this market artificial intelligence algorithms take on the role of traders. They make predictions about the future, and buy and sell stock as indicated by their expectations of future risk and return. Prices are set endogenously to clear the market. Time series from this market are analyzed from the standpoint of well-known empirical features in real markets. The simulated market is able to replicate several of these phenomenon, including fundamental and technical predictability, volatility persistence, and leptokurtosis. Moreover, agent behavior is shown to be consistent with these features, in that they condition on the variables that are found to be significant in the time series tests. Agents are also able to collectively learn a homogeneous rational expectations equilibrium for certain parameters giving both time series and individual forecast values consistent with the equilibrium parameter values.

An artificial stock market

The Santa Fe Artificial Stock Market consists of a central computational market and a number of artificially intelligent agents. The agents choose between investing in a stock and leaving their money in the bank, which pays a fixed interest rate. The stock pays a stochastic dividend and has a price which fluctuates according to agent demand. The agents make their investment decisions by attempting to forecast the future return on the stock, using genetic algorithms to generate, test, and evolve predictive rules. The artificial market shows two distinct regimes of behavior, depending on parameter settings and initial conditions. One regime corresponds to the theoretically predicted rational expectations behavior, with low overall trading volume, uncorrelated price series, and no possibility of technical trading. The other regime is more complex, and corresponds to realistic market behavior, with high trading volume, high intermittent volatility (including GARCH behavior), bubbles and crashes, and the presence of technical trading. One parameter that can be used to control the regime is the exploration rate, which governs how rapidly the agents explore new hypotheses with their genetic algorithms. At a low exploration rate the market settles into the rational expectations equilibrium. At a high exploration rate it falls into the more realistic complex regime. The transition is fairly sharp, but close to the boundary the outcome depends on the agents’ initial “beliefs”—if they believe in rational expectations they occur and are a local attractor; otherwise the market evolves into the complex regime.

Asset Pricing Under Endogenous Expectations in an Artificial Stock Market

We propose a theory of asset pricing based on heterogeneous agents who continually adapt their expectations to the market that these expectations aggregatively create. And we explore the implications of this theory computationally using our Santa Fe artificial stock market.