Publication detail

Heterogeneous Agent Model with Memory and Asset Price Behaviour

Author(s): Mgr. Lukáš Vácha Ph.D.,
prof. Ing. Miloslav Vošvrda CSc.,
Type: IES Occassional Papers
Year: 2002
Number: 1
Published in: IES Occassional Paper 1/2002
Publishing place: Prague
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Suggested Citation:
Abstract: The Efficient Markets Hypothesis provides a theoretical basis on which technical trading rules are rejected as a viable trading strategy. Technical trading rules, providing a signal of when to buy or sell asset based on such price patterns to the user, should not be useful for generating excess returns. Technical traders and chartists tend to put little faith in strict efficient markets. Fundamentalists rely on their model employing fundamental information basis to forecasting of the next price period. The traders determine whether current conditions call for the acquisition of fundamental information in a forward looking manners, rather than relying on post performance. This approach relies on heterogeneity in the agent information and subsequent decisions either as fundamentalists or as chartists. Changing of the chartist's profitability and fundamentalist's positions is the basis of cycles behaviour. A more detail analysis is introduced in the Brock and Hommes model. We analyze this model in a memory case. This branch consists of a behaviour analysis among fundamentalists, technical traders, chartists, and contrarians. It is possible to show that in the case without contrarians but with a length memory adding, and increasing of the intensity choice parameter, fundamentalist's strategy is preferable. Next, the case with fundamentalists and contrarians including different values of coefficients is observed. This case is sensitive on the structure of memory weights and the memory lengths. It is shown that different values of these memory coefficients can significantly change the preferences of trader strategies. The last case, where fundamentalists, trend chasers, and contrarians are presented, shows high profitability of contrarians strategy at the prescribed memory lengths. The implementation of memory in the system with heterogeneous agents model is, in all these simulations, very important. In this case, these results have had very different values in comparison with the case without memory.
Downloadable: OP 2002_1 Vosvrda




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