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: Contribution to journalConference article

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
Pages (from-to)42-49
Number of pages8
JournalLecture Notes in Artificial Intelligence (Subseries of Lecture Notes in Computer Science)
Volume3397
Publication statusPublished - 2005 Oct 24
Event13th International Conference on AIS 2004 - Jeju Island, Korea, Republic of
Duration: 2004 Oct 42004 Oct 6

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Computer Science(all)

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