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Can trend followers survive in the long-run? Insights from agent-based modeling

He, Xue Zhong; Hamill, Philip; Li, Youwei

Authors

Xue Zhong He

Philip Hamill



Contributors

Anthony Brabazon
Editor

Michael O'Neill
Editor

Abstract

This chapter uses a simple stochastic market fraction (MF) asset pricing model to investigate market dominance, profitability, and how traders adopting fundamental analysis or trend following strategies can survive under various market conditions in the long/short-run. This contrasts with the modern theory of finance which relies on the paradigm of utility maximizing representative agents and rational expectations assumptions which some contemporary theorists regard as extreme. This school of thought would predict that trend followers will be driven out of the markets in the long-run. Our analysis shows that in a MF framework this is not necessarily the case and that trend followers can survive in the long-run.

Citation

He, X. Z., Hamill, P., & Li, Y. (2008). Can trend followers survive in the long-run? Insights from agent-based modeling. In A. Brabazon, & M. O'Neill (Eds.), Natural Computing in Computational Finance (253-269). Springer Verlag. https://doi.org/10.1007/978-3-540-77477-8_14

Publication Date Jun 10, 2008
Deposit Date Mar 19, 2019
Journal Natural Computing in Computational Finance; Studies in Computational Intelligence
Print ISSN 1860-949X
Publisher Springer Verlag
Pages 253-269
Series Title Studies in computational intelligence
Series Number 100
Book Title Natural Computing in Computational Finance
Chapter Number 14
ISBN 9783540774761
DOI https://doi.org/10.1007/978-3-540-77477-8_14
Keywords Market price; Trading strategy; Risky asset; Market maker; Asset price model
Public URL https://hull-repository.worktribe.com/output/1390130
Publisher URL https://link.springer.com/chapter/10.1007%2F978-3-540-77477-8_14