Trader dynamics in a model market

Details Trader dynamics in a model market Trader dynamics in a model market

1999-10-06

arxiv.org/abs/cond-mat/9910072v1

Physics

Condensed Matter

Work presented at the EPS Dublin finance conference (July '99)

Scientific paper

We explore various extensions of Challet and Zhang's Minority Game in an attempt to gain insight into the dynamics underlying financial markets. First we consider a heterogeneous population where individual traders employ differing `time horizons' when making predictions based on historical data. The resulting average winnings per trader is a highly non-linear function of the population's composition. Second, we introduce a threshold confidence level among traders below which they will not trade. This can give rise to large fluctuations in the `volume' of market participants and the resulting market `price'.

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