Date: Tue, 14 Jan 1997 19:12:34 GMT Server: Apache/1.1.1 Content-type: text/html Content-length: 2547 Last-modified: Wed, 18 Oct 1995 01:37:25 GMT
Early observers of financial markets believed in the efficient market hypothesis. This hypothesis claims that financial markets will reach an efficient state where prices of stocks will reflect a rational forecast of the present value of future dividend payments. The forces of competition and rational arbitrage would guarantee that prices adjust to their intrinic values. Today, this theory is considered to be highly unrealistic. If financial markets were to become efficient, investors would have to know the exact change in a company's stock value caused by unanticipated future events.
The acceptance of real-life factors, such as imperfect information on behalf of investors, have produced a new school of thought in market theory. Today, the idea of fashion and fads in investor attitudes (or other types of systematic "irrationality") affecting stock prices has gained new respectability. This thinking led to the development of a field named Behavioral Finance. Statistical data and research on stock market history have shown that financial markets have several irrational trends. For example, the New York Stock Exchange Market has a significantly highere average returns on Fridays than it does on Mondays. Such a phenomenon cannot be explained under the assumption of rational behavior.
Utilizing the Maspar (MP2) computer system, we will design a technical schematic for the interacting agents (investors) and their impact on forty companies in the New York Stock Exchange. We will consider several realistic factors such as imperfect information to form a model regarding investor's decision-making process. Using these decisions models, we will then simulate adjustments in stock prices, using non-linear regressional analysis. In doing so, we will find a pattern to define the fluctuations in stock prices..
Everday, millions of agents buy and sell stock on the market. These investor interventions are constantly molding the ever-changing prices of stocks. We set to examine aspects of this non- rational behavior in an investors decision making process. We will then focus on the effect their decisions have on the dynamics of the New York Stock Exchange Market.