TY - GEN
T1 - Analyzing the validity of passive investment strategies employing fundamental indices through agent-based simulation
AU - Takahashi, Hiroshi
AU - Takahashi, Satoru
AU - Terano, Takao
PY - 2011/7/19
Y1 - 2011/7/19
N2 - This research analyzes the influence of indices which are employed in the asset management business on financial markets through agent-based simulation. In this analysis, we focus on a fundamental index, which has been proposed as a new benchmark for investments in place of price indices, which are currently employed in practical business affairs. As a result of intensive experiments in the market, we made the following interesting findings: (1) fundamental indexing works as effectively as a price indexing in the market when market prices reflect fundamental values; (2) fundamental indexing contributes to market efficiency. However, we also found drawbacks to fundamental indexing, such as the risk of destabilizing markets when too many investors employ passive investment strategies using the fundamental index. These results are significant from both practical and academic viewpoints. These analyses also demonstrate the effectiveness of agent-based techniques for financial research.
AB - This research analyzes the influence of indices which are employed in the asset management business on financial markets through agent-based simulation. In this analysis, we focus on a fundamental index, which has been proposed as a new benchmark for investments in place of price indices, which are currently employed in practical business affairs. As a result of intensive experiments in the market, we made the following interesting findings: (1) fundamental indexing works as effectively as a price indexing in the market when market prices reflect fundamental values; (2) fundamental indexing contributes to market efficiency. However, we also found drawbacks to fundamental indexing, such as the risk of destabilizing markets when too many investors employ passive investment strategies using the fundamental index. These results are significant from both practical and academic viewpoints. These analyses also demonstrate the effectiveness of agent-based techniques for financial research.
KW - Agent Based-Model
KW - Behavioral Finance
KW - Financial Engineering
KW - Fundamental Indexation
KW - Passive Investment Strategy
UR - http://www.scopus.com/inward/record.url?scp=79960302892&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=79960302892&partnerID=8YFLogxK
U2 - 10.1007/978-3-642-22000-5_20
DO - 10.1007/978-3-642-22000-5_20
M3 - Conference contribution
AN - SCOPUS:79960302892
SN - 9783642219993
T3 - Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
SP - 180
EP - 189
BT - Agent and Multi-Agent Systems
T2 - 5th KES International Conference on Agent and Multi-Agent Systems: Technologies and Applications, KES-AMSTA 2011
Y2 - 29 June 2011 through 1 July 2011
ER -