Enhancing Stock Investment Returns with Learning Aggressiveness and Trust Metrics
investment when it takes into consideration optimized levels of learning aggressiveness and trust , as compared to the benchmarks of S & P 500 and BAC in the same timeframe .
The top agents in our simulations have a very aggressive learning style . They learn very fast once they have access to the best performers . With a high speed of learning , they are able to get trading rules that work best in the current market environment . Also , these agents believe in following market trends . They tend to react to the latest market changes more aggressively than other agents . Once they realize that their strategies are not maximally profitable in the market place , they immediately lower their trading thresholds for taking or clearing positions . This trading style makes it possible for these agents to prevent further loss when they make incorrect decisions .
Since in this simulation investors have to decide between BAC shares and money with a fixed interest rate , policy makers could try to test various options using this model to see the market reactions to differing scenarios . With varying interest settings , agents may exhibit preferences toward the stock or money . Rationality also plays an important role in the stock price determination , because rationality is affected by the supply and demand of the stocks . Irrational markets occasionally display bubble phenomena . The interest rate setting may be able to control the formation of bubbles and indeed ensure that economy is healthy .
In the future , we will use multiple underlying assets , selected from different sectors of the S & P 500 , in order to test the performance of this model and evaluate different market reactions to the change in interest rates . Policy makers may then use this model to test the impact of different interest rate settings under various market conditions , in order to confirm or disprove the desired changes in the financial markets . When used in this way , the model may be able to work as a new tool for policy makers , and help them improve the effectiveness of their recommended policies .
References
Asgharian , H ., Liu , L ., & Lundtofte , F . ( 2014 ). Institutional quality , trust and stock-market participation : Learning to forget . Social Science Research Network . Retrieved from http :// papers . ssrn . com / sol3 / papers . cfm ? abstract _ id = 2369732 .
Barnes , J . ( 2003 ). Active vs . passive investing . CFA Institute Magazine , 14 ( 1 ), 28 – 30 .
Bonabeau , E . ( 2002 ). ABM : Methods and techniques for simulating human systems . Proceedings of the National Academy of Sciences of the United States of America , 99 ( 3 ), 7280 – 7287 .
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