The value of information in a multi-agent market model

Details The value of information in a multi-agent market model The value of information in a multi-agent market model

2006-10-04

arxiv.org/abs/physics/0610026v2

Eur. Phys. J. B 55, 115-120 (2007)

Physics

Physics and Society

11 pages, 5 figures, published in EPJB

Scientific paper

10.1140/epjb/e2007-00046-2

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.

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