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Agent and Multi-Agent Systems: Technologies and Applications pp 417–426Cite as

Analyzing the Influence of Market Conditions on the Effectiveness of Smart Beta

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Part of the book series: Smart Innovation, Systems and Technologies ((SIST,volume 38))

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. 1.

    I built a virtual financial market on a personal computer with i7 2600 K 3.4 GHz, RAM16 GB. The simulation background is financial theory [5, 10].

  2. 2.

    ‘Buy-and-hold’ is an investment method to hold shares for the medium to long term.

  3. 3.

    This analysis covers the major types of investor behavior [16].

  4. 4.

    When market prices coincide with fundamental value, both passive investors behave in the same way.

  5. 5.

    The value of objective function \(f(w^i_t)\) depends on the investment ratio \((w^i_t)\). The investor decision-making model here is based on the Black/Litterman model that is used in securities investment [4, 11, 12].

  6. 6.

    In the actual market, evaluation tends to be conducted according to baseline profit and loss.

  7. 7.

    Selection pressures on an investment strategy become higher as the value of the coefficient a increases.

References

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Author information

Authors and Affiliations

  1. Graduate School of Business Administration, Keio University, 4-1-1 Hiyoshi, Yokohama, 223-8572, Kohoku-ku, Japan

    Hiroshi Takahashi

Authors
  1. Hiroshi Takahashi
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Corresponding author

Correspondence to Hiroshi Takahashi .

Editor information

Editors and Affiliations

  1. Department of Telecommunications, University of Zagreb, Faculty of Electrical Engineering and Computing, Zagreb, Croatia

    Gordan Jezic

  2. KES International, Shoreham-by-sea, United Kingdom

    Robert J. Howlett

  3. Faculty of Education, Science, Technology and Mathematics, University of Canberra, Canberra, South Australia, Australia

    Lakhmi C. Jain

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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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-19727-2

  • Online ISBN: 978-3-319-19728-9

  • eBook Packages: EngineeringEngineering (R0)

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