Investment Strategies and Financial Markets
Author Information
Author(s): Zhou Wei-Xing, Mu Guo-Hua, Chen Wei, Sornette Didier
Primary Institution: East China University of Science and Technology
Hypothesis
Can the structure of financial markets be better understood by analyzing the evolution of traders' strategies and their interactions?
Conclusion
The study reveals that random trading strategies often outperform real trading strategies, indicating inefficiencies in financial markets.
Supporting Evidence
- More trading generally leads to smaller net returns due to trading frictions.
- Random trading strategies outperformed real trading strategies in the study.
- The performance of traders exhibited non-trivial power law dependence on trading frequency and holding periods.
Takeaway
This study shows that sometimes, just doing random trades can make you more money than trying to be smart about it.
Methodology
The study analyzed trading data from the Shenzhen Stock Exchange in 2003, comparing A-share and B-share markets, and assessing the performance of individual and institutional traders.
Potential Biases
Potential biases in trader behavior and data collection methods could affect the results.
Limitations
The study is limited to data from a single year and a specific market, which may not generalize to other contexts.
Participant Demographics
The study included 2,330,093 A-share traders and 135,086 B-share traders, with a higher proportion of institutional traders in the B-share market.
Digital Object Identifier (DOI)
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