Using virtual stock markets with artificial interacting software investors, aka agent-based models (ABMs), we present a method to reverse engineer real-world financial time series. We model financial markets as made of a large number of interacting boundedly rational agents. By optimizing the...

The paper analyzes the robustness of stable volatility strategies, i.e. strategies in which the portfolio weight of the stock is inversely proportional to its local volatility. These strategies are optimal for a CRRA investor if the stock follows a diffusion process, the expected excess return...

Evolutionary Finance focuses on questions of "survival and extinction" of investment strategies (portfolio rules) in the market selection process. It analyzes stochastic dynamics of financial markets in which asset prices are determined endogenously by a short-run equilibrium between supply and...

This paper characterizes the optimal risk-taking strategies of mutual fund managers competing in multi-period winner-take-all tournaments. With competition among mutual funds, every fund begins by taking maximum risk. In the final period, all funds continue to take maximum risk except possibly...

We study a dynamic mean-variance portfolio optimization problem under the reinforcement learning framework, where an entropy regularizer is introduced to induce exploration. Due to the time-inconsistency involved in a mean-variance criterion, we aim to learn an equilibrium strategy. Under an...

We investigate the possibility of statistical evaluation of the market completeness for discrete timestock market models. It is known that the market completeness isnot a robust property: small random deviations of the coefficientsconvert a complete market model into a incomplete one. The...

Earning forecasts disclosed by financial analysts are known to be overly optimistic. Since an investor relies on their expertise, the question arises whether he would take analyst recommendations at face value or instead structure consultation with differently upward-biased analysts in a way...

In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup &...

Reputational herding has been considered as a driving force behind economic and financial forecasts clustered around consensus values. Strategic coordination can consequently explain poor performances of prediction markets as resulting from the distinct incentives that forecasters face. While...

In a system where expectations and realisations of a price feed back to each other, it has been found that the sign and strength of this feedback is an important predictor of the market stability. In this paper we contribute to the generalisation of this result to a two dimensional system, where...