Market impact and performance of arbitrageurs of financial bubbles in an agent-based model

Westphal，Rebecca1; Sornette，Didier1,2,3

2020-03-01

10.1016/j.jebo.2020.01.004

JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION   影响因子和分区

0167-2681

1879-1751

We analyse the consequences of predicting and exploiting financial bubbles in an agent-based model, with a risky and a risk-free asset and three different trader types: fundamentalists, noise traders and “dragon riders” (DR). The DR exploit their ability to diagnose financial bubbles from the endogenous price history to determine optimal entry and exit trading times. We study the DR market impact as a function of their wealth fraction. With a proportion of up to 10%, DR are found to have a beneficial effect, reducing the volatility, value-at-risk and average bubble peak amplitudes. They thus reduce inefficiencies and stabilise the market by arbitraging the bubbles. At larger proportions, DR tend to destabilise prices, as their diagnostics of bubbles become increasingly self-referencing, leading to volatility amplification by the noise traders, which destroy the bubble characteristics that would have allowed them to predict bubbles at lower fraction of wealth. Concomitantly, bubble-based arbitrage opportunities disappear with large fraction of DR in the population of traders.

Agent-based model Arbitrageurs Financial bubbles Fundamentalists Market impact Noise traders

SSCI

英语

其他

Business & Economics

Economics

WOS:000521510400001

ELSEVIER

ECONOMICS BUSINESS

2-s2.0-85078258037

Scopus

1.ETH Zürich,Department of Management,Technology and Economics,Zürich,Scheuchzerstrasse 7,8092,Switzerland
2.Institute of Risk Analysis,Prediction and Management,Academy for Advanced Interdisciplinary Studies,Southern University of Science and Technology,Shenzhen,518055,China
3.Tokyo Tech World Research Hub Initiative (WRHI),Institute of Innovative Research,Tokyo Institute of Technology,Tokyo,Japan

Westphal，Rebecca,Sornette，Didier. Market impact and performance of arbitrageurs of financial bubbles in an agent-based model[J]. JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION,2020,171:1-23.

Westphal，Rebecca,&Sornette，Didier.(2020).Market impact and performance of arbitrageurs of financial bubbles in an agent-based model.JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION,171,1-23.

Westphal，Rebecca,et al."Market impact and performance of arbitrageurs of financial bubbles in an agent-based model".JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION 171(2020):1-23.