Abstract
Stock indices play a significant role in asset management business. Price indices are popular in practical business. However, recent empirical analyses suggest that a smart beta, which is proposed as a new stock index, could achieve a positive excess return. With these arguments in mind, this study analyzes the effectiveness of smart beta through agent-based modeling. As a result of intensive experiments in the market, I made the following finding that effectiveness of smart beta could be influenced by the extent of a diversity of investors’ behavior. These results are significant from both practical and academic viewpoints.
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Notes
- 1.
- 2.
‘Buy-and-hold’ is an investment method to hold shares for the medium to long term.
- 3.
This analysis covers the major types of investor behavior [16].
- 4.
When market prices coincide with fundamental value, both passive investors behave in the same way.
- 5.
- 6.
In the actual market, evaluation tends to be conducted according to baseline profit and loss.
- 7.
Selection pressures on an investment strategy become higher as the value of the coefficient a increases.
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A List of Main Parameters
A List of Main Parameters
This section lists the major parameters of the financial market designed for this paper. Explanations and values for each parameter are described.
M: Number of investors (1000)
N: Number of shares (1000)
\(F_t^i\): Total asset value of investor i for term t (\(F_0^i=2000\): common)
\(W_t\): Ratio of stock in benchmark for term t (\(W_0=0.5\))
\(w_t^i\): Stock investment rate of investor i for term t (\(w_0^i=0.5\): common)
\(y_t\): Profits generated during term t (\(y_0=0.5\))
\(\sigma _y\): Standard deviation of profit fluctuation (\(0.2/\sqrt{200}\))
\(\delta \): Discount rate for stock(0.1 / 200)
\(\lambda \): Degree of investor risk aversion (1.25)
\(\sigma _n\): Standard deviation of dispersion from short-term expected rate of return on shares (0.01)
c: Adjustment coefficient (0.01)
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Takahashi, H. (2015). Analyzing the Influence of Market Conditions on the Effectiveness of Smart Beta. In: Jezic, G., Howlett, R., Jain, L. (eds) Agent and Multi-Agent Systems: Technologies and Applications. Smart Innovation, Systems and Technologies, vol 38. Springer, Cham. https://doi.org/10.1007/978-3-319-19728-9_35
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DOI: https://doi.org/10.1007/978-3-319-19728-9_35
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