Analysis Passive Investment Strategies and Asset Price Fluctuation in Financial Market Through Agent

Abstract

In this paper, using agent-based models, we discuss the effects of Passive Investment Strategies in asset management business. Although the Passive Investment Strategy is an effective way in efficient markets, Behavioral Finance points out that markets aren't always efficient. We build a virtual financial market which consists of a thousand investors and allows them to trade two types of assets: a stock and a riskless asset. In this market, multiple types of investors exist and conduct trades based on the investment rules defined for each type. The experiments suggest that Passive Investment is valid in a realistic efficient market, yet it could have bad influences such as market instability and inadequate asset pricing deviation.