The value of information in financial markets: An agent-based simulation

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Toth, Bence
Scalas, Enrico
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We present results on simulations of a stock market with heterogeneous, cumulative information setup. We find a non-monotonic behaviour of traders' returns as a function of their information level. Particularly, the average informed agents underperform random traders; only the most informed agents are able to beat the market. We also study the effect of a strategy updating mechanism, when traders have the possibility of using other pieces of information than the fundamental value. These results corroborate the latter ones: it is only for the most informed player that it is rewarding to stay fundamentalist. The simulations reproduce some stylized facts of tick-by-tick stock-exchange data and globally show informational efficiency.
Comment: 25 pages, 7 figures invited paper to "Information, Interaction, and (In)Efficiency in Financial Markets" edited by Juergen Huber and Michael Hanke
Keywords
Quantitative Finance - Trading and Market Microstructure, Physics - Physics and Society
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