TITLE:
How to Model Noise Traders Investors Using Prospect Theory
AUTHORS:
Elder M. Silva, Lydiane Takimoto
KEYWORDS:
Stock Market, Prospect Theory, Noise Trader
JOURNAL NAME:
Open Access Library Journal,
Vol.4 No.4,
April
25,
2017
ABSTRACT: Looking
at stock market composition you will see investor which carry their positions
for a long time, as well a bunch of investors that change their position many
times within a day. The investor which negotiates using intraday strategy is
well known as: noise traders (the day trader’s). The ways their behavior is
simulated into the economic theory today using rules of thumbs for them, and
include them in a market with others investors that did not use those rules,
but use sophisticated mechanism such as expected value instead. The
contribution of the paper to the literature is to offer a unified way to model
noise traders. Regularly, agent based models in finance use to different rules
to model the behavior into the financial market. One for the skilled investors,
and other to more naïve ones. The noise traders would be included in
the second group. Our proposal is to model both groups with the same rule.