Impact of strategy switching on wealth accumulation
Various investment strategies coexist in financial markets. Fluctuations in the profitability of strategies rationalize investors’ strategy switching behaviors. Under bounded rationality and limited information, such behavior is usually driven by comparing the past performance of different strate...
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sg-ntu-dr.10356-1370282020-09-04T10:23:03Z Impact of strategy switching on wealth accumulation Zhang, Yu Huang, Weihong School of Social Sciences Social sciences::Economic theory Heterogeneous Agent Model Intensity of Choice Various investment strategies coexist in financial markets. Fluctuations in the profitability of strategies rationalize investors’ strategy switching behaviors. Under bounded rationality and limited information, such behavior is usually driven by comparing the past performance of different strategies. But at what pace should investors change their strategies? Does a frequent strategy switching lead to a higher wealth in the end? To answer these questions, a discrete dynamic heterogeneous agent model is proposed, in which agents follow heuristic rules and a market maker adjusts the price of a risky asset. Agents are classified by their propensity of strategy switching. It is found that agents with a higher propensity adopt the better strategy more often, but end up with less final wealth. This counter-intuitive phenomenon is caused by the inconsistency between short-run profit and long-run wealth accumulation. Accepted version 2020-02-13T05:04:27Z 2020-02-13T05:04:27Z 2017 Journal Article Zhang, Y., & Huang, W. (2018). Impact of strategy switching on wealth accumulation. Journal of Evolutionary Economics, 28(4), 961-983. doi:10.1007/s00191-017-0543-3 0936-9937 https://hdl.handle.net/10356/137028 10.1007/s00191-017-0543-3 2-s2.0-85034245928 4 28 961 983 en Journal of Evolutionary Economics This is a post-peer-review, pre-copyedit version of an article published in Journal of Evolutionary Economics. The final authenticated version is available online at: https://doi.org/10.1007/s00191-017-0543-3 application/pdf |
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Social sciences::Economic theory Heterogeneous Agent Model Intensity of Choice Zhang, Yu Huang, Weihong Impact of strategy switching on wealth accumulation |
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Various investment strategies coexist in financial markets. Fluctuations in the
profitability of strategies rationalize investors’ strategy switching behaviors. Under
bounded rationality and limited information, such behavior is usually driven by
comparing the past performance of different strategies. But at what pace should
investors change their strategies? Does a frequent strategy switching lead to a higher
wealth in the end? To answer these questions, a discrete dynamic heterogeneous agent
model is proposed, in which agents follow heuristic rules and a market maker adjusts
the price of a risky asset. Agents are classified by their propensity of strategy switching.
It is found that agents with a higher propensity adopt the better strategy more often, but
end up with less final wealth. This counter-intuitive phenomenon is caused by the
inconsistency between short-run profit and long-run wealth accumulation. |
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School of Social Sciences |
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School of Social Sciences Zhang, Yu Huang, Weihong |
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Article |
author |
Zhang, Yu Huang, Weihong |
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Zhang, Yu |
title |
Impact of strategy switching on wealth accumulation |
title_short |
Impact of strategy switching on wealth accumulation |
title_full |
Impact of strategy switching on wealth accumulation |
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Impact of strategy switching on wealth accumulation |
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Impact of strategy switching on wealth accumulation |
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impact of strategy switching on wealth accumulation |
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2020 |
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https://hdl.handle.net/10356/137028 |
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