• DocumentCode
    3415983
  • Title

    Overconfident investors in the LLS agent-based artificial financial market

  • Author

    Lovric, Milan ; Kaymak, Uzay ; Spronk, Jaap

  • Author_Institution
    Dept. of Finance, Erasmus Univ. Rotterdam, Rotterdam
  • fYear
    2009
  • fDate
    March 30 2009-April 2 2009
  • Firstpage
    58
  • Lastpage
    65
  • Abstract
    Agent-based artificial financial markets are bottom-up models of financial markets which explore the mapping from the micro level of individual investor behavior into the macro level of aggregate market phenomena. It has been recently recognized in the literature that such (agentbased) models are potentially a very suitable tool to generate or test various behavioral hypotheses. One of the psychological biases that received a lot of attention in financial studies, both mainstream and behavioral, is the phenomena of investor overconfidence. This paper studies overconfident investors in the agent-based artificial financial market based on the Levy, Levy, Solomon (2000) model. Overconfidence is modeled as miscalibration, i.e. as underestimated risk of expected returns. We find that overconfident investors create less frequent but more extreme bubbles and crashes when compared to the unbiased efficient market believers of the original model. When investors are modeled to exhibit a biased self-attribution, they quickly move to the state of high overconfidence and remain there. With an unbiased self-attribution, on the other hand, investor overconfidence varies greatly, but around a moderate level of overconfidence.
  • Keywords
    investment; psychology; LLS agent-based artificial financial market; behavioral hypotheses; biased self-attribution; overconfident investors; psychological biases; Aggregates; Books; Costs; Decision making; Environmental economics; Finance; Humans; Psychology; Signal to noise ratio; Sociology;
  • fLanguage
    English
  • Publisher
    ieee
  • Conference_Titel
    Computational Intelligence for Financial Engineering, 2009. CIFEr '09. IEEE Symposium on
  • Conference_Location
    Nashville, TN
  • Print_ISBN
    978-1-4244-2774-1
  • Type

    conf

  • DOI
    10.1109/CIFER.2009.4937503
  • Filename
    4937503