Fundamentals unknown: Momentum, mean-reversion and price-to-earnings trading in an artificial stock market

Arbeitspapier

The use of fundamentalist traders in the stock market models is problematic since fundamental values in the real world are unknown. Yet, in the literature to date, fundamentalists are often required to replicate key stylized facts. The authors present an agent-based model of the stock market in which the fundamental value of the asset is unknown. They start with a zero intelligence stock market model with a limit-order-book. Then, the authors add technical traders which switch between a simple momentum and mean reversion strategy depending on its relative profitability. Technical traders use the price to earnings ratio as a proxy for fundamentals. If price to earnings are either too high or too low, they sell or buy, respectively.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Discussion Papers ; No. 2017-63

Classification and Topics

• Classification: Wirtschaft ; Computational Techniques; Simulation Modeling ; General Equilibrium and Disequilibrium: Financial Markets ; Expectations; Speculations ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Forecasting and Simulation
• Subject: Agent-based modelling ; financial markets ; technical and fundamental analysis ; asset pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schasfoort, Joeri ; Stockermans, Christopher
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/169122
• Last update: 10.03.2025, 11:42 AM CET