This paper uses a simple stochastic market fraction (MF) asset pric-ing model to investigate market dominance, profitability, and how traders adoptingfundamental analysis or trend following strategies can survive under various marketconditions in the long/short-run. This contrasts with the modern theory of financewhich relies on the paradigm of utility maximizing representative agents and ratio-nal expectations assumptions which some contemporary theorists regard as extreme.This school of thought would predict that trend followers will be driven out of themarkets in the long-run. Our analysis shows that in a MF framework this is notnecessarily the case and that trend followers can survive in the long-run.
|Title of host publication||Natural Computing in Computational Finance|
|Editors||Anthony Brabazon, Michael O'Neill|
|Publication status||Published - 2008|
He, X-Z., Hamill, P., & Li, Y. (2008). Can Trend Followers Survive in the Long-Run? Insights from Agent-Based Modeling. In A. Brabazon, & M. O'Neill (Eds.), Natural Computing in Computational Finance (pp. 253-269). Springer.