1 / 15

Introducing Social Investors into Multi-Agent Models of Financial Markets

Explore the impact of social investors in financial markets and the role they play in market bubbles. Discuss the necessity of multi-agent models to capture the complex dynamics involved and potential intervention strategies.

lenaa
Download Presentation

Introducing Social Investors into Multi-Agent Models of Financial Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Introducing Social Investors into Multi-Agent Models of Financial Markets Stephen Chen, Brenda Spotton Visano, and Ying KongYork University

  2. What is a Social Investor? • Trend Investors • Buy when prices are going up • aka momentum investors, technical analysts, noise investors • Social Investors • Buy when others are buying IEA-AIE 2006

  3. What is the Role of Social Investors? • What happens during a mania or market bubble? • “Irrational Exuberance” • Market bubbles tend to coincide with increases in market participation IEA-AIE 2006

  4. Why use a Multi-Agent Model? • Capture the dynamics of the event • Model a larger number of actors and interactions • Mathematical intractability • Test intervention strategies IEA-AIE 2006

  5. Existing Models of Financial Crises • Financial instability (Banking crises) • Game theory models of discrete time events – e.g. coordination failure • Market bubbles and crashes • Mostly qualitative analysis – e.g. socio-economic factors, new technology, new market mechanisms, etc IEA-AIE 2006

  6. Existing Multi-Agent Models • Developed to model distributions of price changes  “fat tails” • Models have two investor types • Fundamental and Noise/Trend • Models focus on communication processes IEA-AIE 2006

  7. Game Theory • Actors each have a choice, and the reward of each choice depends on the action of the other actor IEA-AIE 2006

  8. Nash Equilibria • First actor makes a decision, second actor picks optimal decision based on first actor’s decision, first actor’s optimal decision is the original decision IEA-AIE 2006

  9. Example of Nash Equilibrium • Actor 1 Cooperates • Actor 2 Defects • +5 benefit vs. +1 • Actor 1 Defects • -5 benefit vs. -10 • Actor 2 still Defects • Nash Equilibrium IEA-AIE 2006

  10. Game Theory behind Multi-Agent Model • Two actors – Fundamental and Trend • Fundamental buying causes price to go up • Trend buying because price is going up • Fundamental selling because price is too high • Trend selling because price is going down IEA-AIE 2006

  11. Game Theory behind Multi-Agent Model II • Two actors – Informed and Social • Informed buying causes prices to go up • Social buying because others are buying causes prices to keep going up • Informed keep buying because prices are going up IEA-AIE 2006

  12. Model Results • Only two states – overly sinusoidal price trends IEA-AIE 2006

  13. Current Results • Actors: Fundamental, Trend, and Social • No Nash equilibrium IEA-AIE 2006

  14. Summary • Existing (theoretical) tools are not suitable for the modelling of all economic phenomena • Easy to model stable or unstable systems, but hard to model semi-stable systems IEA-AIE 2006

  15. Future Work • Sensitivity testing – analysis of key factors between stable and unstable systems • Interventions strategies – attempts to ameliorate a market bubble in “real time” IEA-AIE 2006

More Related