Markets play a central role in today’s society and wide application ranging from stock markets to consumer-to-consumer e-commerce. Success in market trading will greatly depend on traders having accurate market forecasts. There are two main types of trading strategies: fundamentalists and chartists. Fundamentalists use a forecasting model that correctly identify the fundamental driving forces of the market.
In simulation and in human experiments, averagely in-formed traders may be outperformed by uninformed traders that follow solely the current market price. One possible theory is that more information helps during trends, whereas limited knowledge may be erroneous when the trend reverses.
-comes is the presence of noise. Especially forecasting in-formation may well be unreliable or imprecise, leading to adiminishing return on investment for information. In this paper we analyze the effect of noise by comparing different noise functions in a market with variously informed traders. We compare the influence of noise and the in infiuence of cost.
noisetrader_auto2
Trading in markets with noisy information: an evolutionary analysis
Herding in Financial and Political Markets
Adaptive Markets: Financial Evolution at the Speed of Thought, Andrew W. Lo