Analyzing the Efficacy of Passive Investment Strategies through Agent-Based Modelling: Overconfident Investors and Investors with Better Predictive Power
This study analyses the efficacy of a passive investment strategy - which is one of the most popular investment strategies in the asset management business - thorough agent-based modelling. As a result of intensive experimentation, the following conclusions were confirmed: (1) overconfident investors could achieve a positive excess return in the market where there are no passive investors. However, (2) even if overconfident investors have better predictive power, they couldn’t survive in a market where passive investors exist. These results suggest the effectiveness of a passive investment strategy. The results are of both academic interest and practical use.
KeywordsFinance Agent-based Modelling Behavioral Economics Overconfidence Asset Management
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