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The Red Queen Principle and the Emergence of Efficient Financial Markets: An Agent Based Approach

Conference paper
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 550)

Summary

In competitive coevolution, the Red Queen principle entails constraints on performance enhancement of all individuals if each is to maintain status quo in relative fitness measured by an index relating to aggregate performance. This is encapsulated in Lewis Caroll's Red Queen who says ”in this place it takes all the running you can do, to keep in the same place”. The substantive focus of this paper is to experimentally generate stock market ecologies reflecting the Red Queen principle for an explanation of the observed highly inegalitarian power law distribution in investor income (measured here as stock holdings) and the emergence of arbitrage free conditions called market efficiency. With speculative investors modelled as using genetic programs (GPs) to evolve successful investment strategies, the analytical statement of our hypothesis on the Red Queen principle can be implemented by constraint enhanced GPs which was seminally developed in [19], [7] and [10].

Keywords

Genetic Program Complex Adaptive System Cumulative Density Function Arbitrage Opportunity Investment Performance 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  1. 1.Economics Department and Centre For Computational Finance and Economic Agents (CCFEA)University of EssexEssexUK
  2. 2.Computer Science Department and Centre For Computational Finance and Economic Agents (CCFEA)University of EssexEssexUK
  3. 3.Centre For Computational Finance and Economic Agents (CCFEA)University of EssexEssexUK

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