Journal of Investment Strategies

Risk.net

Strong-hand conjecture: agent-based numerical simulation

Marek Karaś and Anna Serwatka

  • The aim of this paper is to perform computer simulations based on agent modeling on the financial market, where shares of one company and a bank account are available (agents can invest and borrow money), and to observe how the total portfolio changes in two groups of investors: so-called large and small investors.
  • Following the example of the Kim–Markowitz model, the paper adopts similar mechanisms of market operation, including estimating the estimated price and rebalancing strategies.
  • The simulations show that large investors have a greater influence on stock prices and are stronger as a group, with a total portfolio greater than that of small investors at the last day of simulations.
  • Large investors earn more even though they have the same investment strategy and knowledge of the market as small investors. 

Following the example of the Kim–Markowitz model, this study adopts similar mechanisms of market operation to perform computer simulations based on agent modeling on the financial market, where shares of one company and a bank account are available (agents can invest and borrow money). The aim of the paper is to observe how the total portfolio changes in two groups of investors: so-called large and small investors. We examine the ratio of the total portfolio of large investors over time and hypothesize that, looking at two groups of investors who are equally rich at time t = 0, the group of large investors will gain more by the last day of our simulations. Our simulations show that large investors have a greater influence on stock prices and are stronger as a group, with a total portfolio greater than that of small investors on the last day of simulations, confirming the conjecture of strong hands.

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