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The European Physical Journal B

, Volume 55, Issue 1, pp 115–120 | Cite as

The value of information in a multi-agent market model

The luck of the uninformed
  • B. Tóth
  • E. Scalas
  • J. Huber
  • M. Kirchler
Interdisciplinary Physics

Abstract.

We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic relationship of net returns of traders as a function of information levels, both in the experiments and in the simulations. Particularly, averagely informed traders perform worse than the non informed and only traders with high levels of information (insiders) are able to beat the market. The simulations and the experiments reproduce many stylized facts of tick-by-tick stock-exchange data, such as fast decay of autocorrelation of returns, volatility clustering and fat-tailed distribution of returns. These results have an important message for everyday life. They can give a possible explanation why, on average, professional fund managers perform worse than the market index.

PACS.

89.65.Gh Economics; econophysics, financial markets, business and management 89.65.-s Social and economic systems 89.70.+c Information theory and communication theory 89.75.-k Complex systems 

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Copyright information

© EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

Authors and Affiliations

  1. 1.ISI Foundation, Viale S. Severo 65TorinoItaly
  2. 2.Department of Theoretical PhysicsBudapest University of Technology and EconomicsBudapestHungary
  3. 3.Dipartimento di Scienze e Tecnologie AvanzateEast Piedmont UniversityAlessandriaItaly
  4. 4.Yale School of ManagementNew HavenUSA
  5. 5.Department of Banking and Finance, Universitaetsstrasse 15 AInnsbruck University School of ManagementInnsbruckAustria

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