Evaluation of transaction risks of mean variance model under identical variance of the rate of return - Simulation in artificial market

Ko Ishiyama, Shusuke Komuro, Hideki Tanuma, Yusuke Koyama, Hiroshi Deguchi

Research output: Chapter in Book/Report/Conference proceedingConference contribution

1 Citation (Scopus)

Abstract

Mean Variance (MV) model has spread through institutional investors as one of the most typical diversified investment model. MV model defines the investment risks with the variance of the rate of return. Therefore, if any variances of two portfolios are equal, MV model will judge that the investment risks are identical. However, even if variances are equal, two different risk cases will occur. One is just depended on market volume. The other is fully depended on speculators who raise stock prices when institutional investors are purchasing stocks. Consequently, the latter makes institutional investors pay excessive transaction costs. Development of ABM (Agent Based Modeling) in recent years makes it possible to analyze this kind of problem by simulation. In this paper, we formulate a financial market model where institutional investors and speculators trade twenty stocks simultaneously. Results of simulation show that even if variances are equal, investment risks are not identical.

Original languageEnglish
Title of host publicationLecture Notes in Artificial Intelligence (Subseries of Lecture Notes in Computer Science)
EditorsT.G. Kim
Pages42-49
Number of pages8
Volume3397
Publication statusPublished - 2005
Externally publishedYes
Event13th International Conference on AIS 2004 - Jeju Island, Korea, Republic of
Duration: 2004 Oct 42004 Oct 6

Other

Other13th International Conference on AIS 2004
CountryKorea, Republic of
CityJeju Island
Period04/10/404/10/6

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ASJC Scopus subject areas

  • Hardware and Architecture

Cite this

Ishiyama, K., Komuro, S., Tanuma, H., Koyama, Y., & Deguchi, H. (2005). Evaluation of transaction risks of mean variance model under identical variance of the rate of return - Simulation in artificial market. In T. G. Kim (Ed.), Lecture Notes in Artificial Intelligence (Subseries of Lecture Notes in Computer Science) (Vol. 3397, pp. 42-49)