Scaling laws of strategic behavior and size heterogeneity in agent dynamics

Gabriella Vaglica, Fabrizio Lillo, Esteban Moro y Rosario N. Mantegna
Physical Review E 77, 036110 (2008). [pdf]

Abstract:
The dynamics of many socioeconomic systems is determined by the decision making process of agents. The decision process depends on agent’s characteristics, such as preferences, risk aversion, behavioral biases, etc. In addition, in some systems the size of agents can be highly heterogeneous leading to very different impacts of agents on the system dynamics. The large size of some agents poses challenging problems to agents who want to control their impact, either by forcing the system in a given direction or by hiding their intentionality. Here we consider the financial market as a model system, and we study empirically how agents strategically adjust the properties of large orders in order to meet their preference and minimize their impact. We quantify this strategic behavior by detecting scaling relations of allometric nature between the variables characterizing the trading activity of different institutions. We observe power law distributions in the investment time horizon, in the number of transactions needed to execute a large order and in the traded value exchanged by large institutions and we show that heterogeneity of agents is a key ingredient for the emergence of some aggregate properties characterizing this complex system.

Related posts:

1. Agent-specific impact of single trades in financial markets Alex Bladon, Esteban Moro y Tobias Galla Physical Review E...
2. Market impact and trading profile of large trading orders in stock markets Esteban Moro, Javier Vicente, Luis G. Moyano, Austin Gerig, J....
3. Specialization of strategies and herding behavior of trading firms in a financial market Fabrizio Lillo, Esteban Moro, Gabriella Vaglica y Rosario Mantegna New...
4. The Network Laws of Viral Marketing J. L. Iribarren and E. Moro  Enviado (2007) [pdf]  Abstract...
5. The Minority Game: an introductory guide Esteban Moro Review article (24 pages), in Advances in Condensed...