Agent-based Experimental Study On Trading Strategy Evolution And Excess Volatility

Since many anomalies were reported in the 1980s, lots of western financialeconomists have been working hard on the development of the "new finance theories",which may provide better explanations on these anomalies. Among these new theories,western scholars have got fruitful results on behavioral finance theory, While in Chinasuch researches focus on the introduction of foreign theories and the work ofempirical examinations on the reported anomalies in China Stock Markets (CSM).Only very recently, a few researches on the behavioral characteristics of investors onthe CSM have been conducted, while the work of modeling the CSM and CSManomalies is now still left to be done. Among these anomalies, Chinese scholars havedone little work on the "excess volatility puzzle", which says it is difficulty to explainthe historical volatility of stock returns with any model in which investors are rationaland discount rates are constant. I believe that it is because CSM has founded only for10 years or so, which provides insufficient data for us to carry out empirical analysis.Therefore, in this dissertation, I try a computationally experimental approach in orderto examine whether there is excess volatility on the CSM and to find out themicroscopic explanation on such puzzle.The researches in this dissertation is carried out in two ways. First, differenttypes of divident processes are introduced to examine the existence of excessvolatility puzzle on the CSM. There are two advantages by using such way, which cannot only deal with the difficulties in the estimate of long-term divident process, butalso provide an insight into the microscopic behavioral of stock market investors. Myexperimental results show that, when the predictability of divident process decreasesor when the learning frequency of investors increases, investors will tend to adopttechnical forecasting rules, which will lead to the higher degree of excess volatility inthe aggregate markets. In the last, this dissertation analyzes the characteristics of theCSM, which proves that the experiments in my researches have the same structure asthat of the CSM and means there may be more excess volatility on the CSM.