Martin Scholl (University of Oxford): "Studying Market Ecology Using Agent-Based Models"

Abstract: This talk presents a mathematical analogy between financial trading strategies and biological species and shows how to apply standard concepts from ecology to financial markets. We analyze the interactions of stereotypical trading strategies in ecological terms, showing that they can be competitive, predator-prey, or mutualistic, depending on the wealth invested in each strategy. The deterministic dynamics suggest that the system should evolve toward an efficient state where all strategies make the same average returns. However, this happens slowly, and the evolution is so noisy that there are large fluctuations away from the efficient state, causing bursts of volatility and extended periods where prices deviate from fundamental values.

Speaker Bio: Maarten P. Scholl is a PhD student at the Institute for New Economic Thinking (INET) at the Oxford Martin School and the Department of Computer Science. He works on classifying financial market activities using regulatory reporting data and uses Agent-Based Models (ABMs) to simulate financial market scenarios to uncover all possible interactions between market activities.