The implications of trader cognitive abilities on stock market properties

Manahov, Viktor; Soufian, Mona; Hudson, Robert

Abstract

Market structure and individual rationality remain at the centre of a debate as to which is the main driving force in market performance. We examine the role of individual rationality, comparing zero‐intelligence traders with traders with different levels of intelligence using a special adaptive form of strongly typed genetic programming‐based learning algorithm. We use this approach with real data: historical quotes of the S&P 500 and Coca‐Cola stock prices. We find a mixture of positive and negative impacts from intelligence on market performance. Because the concept of market structure as a driving force has been significantly challenged in the literature, we suggest that the inclusion of both intelligence and market structures is important when examining the driving forces of market performance. This inclusion is consistent with the research of Todd and Gigerenzer (Journal of Economic Psychology, 24 (2003) 143–165), which asserts that both environment (market structure) and agents’ cognition play important roles.

Citation

Manahov, V., Soufian, M., & Hudson, R. (2014). The implications of trader cognitive abilities on stock market properties. Intelligent Systems in Accounting, Finance and Management, 21(1), 1-18. https://doi.org/10.1002/isaf.1348

• Journal Article Type: Article
• Acceptance Date: Oct 12, 2013
• Online Publication Date: Nov 12, 2013
• Publication Date: 2014-01
• Deposit Date: May 15, 2019
• Journal: Intelligent Systems in Accounting, Finance and Management
• Print ISSN: 1055-615X
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 21
• Issue: 1
• Pages: 1-18
• DOI: https://doi.org/10.1002/isaf.1348
• Public URL: https://hull-repository.worktribe.com/output/1788317
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1002/isaf.1348