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Some new results on the Levy, Levy and Solomon microscopic stock market model by Elmar Zschischang; Thomas Lux is a Physics and Astronomy article available to read on EtoBox.

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We report some ÿndings from our simulations of the Levy, Levy and Solomon microscopic stock market model. Our results cast doubts on some of the results published in the original papers (i.e., chaotic stock price movements). We also point out the possibility of sensitive dependence on initial conditions of the emerging wealth distribution among agents. Extensions of the model set-up show that with varying degrees of risk aversion, the less risk averse traders will tend to dominate the market. Similarly, when introducing a new trader group (or even a single trader) with a constant share of stocks in their portfolio, the latter will eventually take over and marginalize the other groups. The better performance of the more sober investors is in accordance with traditional perceptions in ÿnancial economics. Hence, the survival of 'noise traders' looking at short-term trends and patterns remains as much of a puzzle in this framework as in the traditional E cient Market Theory.

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Author

Elmar Zschischang; Thomas Lux

Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0378-4371)

Published

2001

Language

EN

Field

Physics and Astronomy (Physical Sciences)