Agent-based modelling: investigating the effects of varied trading strategies on market dynamics

Abstract

This study harnesses agent-based modeling to simulate market scenarios, shedding light on how different investor types shape our financial landscape. Fundamental investors, when prevalent, reduce pricing errors and enhance market stability, while the influence of technical traders am plifies market efficiency and trading activity at the expense of increased volatility and decreased stability. Additionally, the excessive prevalence of mean reversion strategies exacerbates mar ket fluctuations, resulting in erratic price movements and a suboptimal level of efficiency that further undermines market stability.