Pyramid scheme in stock market: a kind of financial market simulation

TL;DR

This paper presents an agent-based artificial stock market simulation to study pyramid scheme phenomena, revealing how investor behaviors and strategies influence market dynamics and potential regulatory insights.

Contribution

It introduces a novel simulation model incorporating different investor types and analyzes their impact on pyramid scheme characteristics in financial markets.

Findings

Relationship between main fund return rate and trend investor proportion

Impact of profit-taking and stop-loss parameters on market behavior

Strategies of main fund influence pyramid scheme formation

Abstract

Artificial stock market simulation based on agent is an important means to study financial market. Based on the assumption that the investors are composed of a main fund, small trend and contrarian investors characterized by four parameters, we simulate and research a kind of financial phenomenon with the characteristics of pyramid schemes. Our simulation results and theoretical analysis reveal the relationships between the rate of return of the main fund and the proportion of the trend investors in all small investors, the small investors' parameters of taking profit and stopping loss, the order size of the main fund and the strategies adopted by the main fund. Our work are helpful to explain the financial phenomenon with the characteristics of pyramid schemes in financial markets, design trading rules for regulators and develop trading strategies for investors.