Self-organized segregation of traders within a market

Neil F Johnson, P. M. Hui, T. S. Lo

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

We study a simple competitive market, in which individual traders adapt their trading strategies according to past experience. Because of the limited knowledge available to them, they are forced to make decisions based on inductive, rather than deductive, thinking. We show that a population of competing traders with similar capabilities and knowledge will tend to self-segregate into opposing groups characterized by extreme behaviour. To be successful, a trader should behave in an extreme way, by either always copying or rejecting past trends in the market's history. Cautious traders tend to perform poorly.

Original languageEnglish (US)
Pages (from-to)2013-2018
Number of pages6
JournalPhilosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences
Volume357
Issue number1758
StatePublished - 1999
Externally publishedYes

Fingerprint

Copying
Segregation
Extremes
histories
Tend
trends
Trading Strategies
Knowledge
Market
Experience
History
Trends

Keywords

  • Bounded rationality
  • Competitive market
  • Evolutionary dynamics
  • Microstructure
  • Strategies
  • Trading

ASJC Scopus subject areas

  • General

Cite this

Self-organized segregation of traders within a market. / Johnson, Neil F; Hui, P. M.; Lo, T. S.

In: Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, Vol. 357, No. 1758, 1999, p. 2013-2018.

Research output: Contribution to journalArticle

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