Traders are required to work in the financial market with highly complex information and to perform efficiently under high levels of psychological pressure. Multiple disciplines, from programs with artificial intelligence to complex mathematical functions, are used to help traders in their effort to maximize profits. However, an essential problem not yet considered in this rapidly evolving envi...

We analyze the trading activity in an Internet chat room with approximately 1,300 participants. Traders make posts in real time about their activities. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they earn $153 per trade. Traders hold their winners 25% longer than their losers. They have statistically sign...

Without the rule of law, traders who incur trading costs can be held up by counter-parties who are stronger in anarchic bargaining. The favourable terms which the latter extract can overcrowd that side of the market, dissipating the benefits. We establish plausible necessary and sufficient conditions for a move from anarchy toward the rule of law to benefit all traders. The rule of law might be...

We present a simple, Glosten-Milgrom type equilibrium model to analyze the decision of informed traders on whether to use limit or market orders. We show that even after incorporating an order’s price impact, not only may informed traders prefer to use limit orders, but the probability that they submit limit orders can be so high that limit orders convey more information than market orders. We ...

In this paper, we propose a novel general framework for analysing competing double auction markets that vie for traders, who then need to choose which market to go to. Based on this framework, we analyse the competition between two markets in detail. Specifically, we game-theoretically analyse the equilibrium behaviour of traders’ market selection strategies and adopt evolutionary game theory t...

We analyze a market game where traders are heterogeneous with respect to their rationality level and have asymmetric information. The market mechanism results into a statistical equilibrium, where traders randomise among their available actions due to their limited rationality. We provide a necessary and sufficient condition for convergence of statistical to strategic equilibria of market games...

We introduce a simple asset pricing model with two types of adaptively learning traders, fundamentalists and technical traders. Traders update their beliefs according to past performance and to market conditions. The model generates endogenous price uctuations and captures some stylized facts observed in real returns data, such as excess volatility, fat tails of returns distributions, volatilit...

a r t i c l e i n f o JEL classification: C15 G14 D53 D82 Keywords: Information costs Noise trader Fundamental analysis Agent-based modeling This study explores the long-standing question about the survival of noise traders in financial markets through the relatively new method of agent-based modeling. We find that, in the normal case, there are two attractors for the ratio of experts versus no...