Inter-pattern speculation: beyond minority, majority and $-games

TL;DR

This paper introduces a novel financial market model emphasizing sequential trader interactions and pattern-based speculation, revealing distinct behaviors between naive and sophisticated agents and drawing parallels to the Minority Game.

Contribution

It presents a new simple model of financial markets based on pattern-based speculation and trader interaction, extending the Minority Game framework.

Findings

Naive and sophisticated agents produce different market phenomena.

Information ecology resembles that of the Minority Game.

The model highlights the importance of trader interaction sequences.

Abstract

A new simple model of financial market is proposed, based on the sequential and inter-temporal nature of trader-trader interaction, and on a new simple trading strategy space. In this pattern-based speculation model, the traders open and close their positions explicitly. Information ecology is strikingly similar to that of the Minority Game which suggest to reinterpret the latter as a model of synchronisation of predictability exploitation. Naive and sophisticated agents are shown to give rise to very different phenomenology