Analyzing the Efficacy of Passive Investment Strategies through Agent-Based Modelling: Overconfident Investors and Investors with Better Predictive Power

Part of the Advances in Intelligent Systems and Computing book series (AISC, volume 296)

Abstract

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.

Keywords

Finance Agent-based Modelling Behavioral Economics Overconfidence Asset Management 

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Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  1. 1.Graduate School of Business AdministrationKeio UniversityYokohamaJapan

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