Why do active funds that trade infrequently make a market more efficient? — Investigation using agent-based model

摘要

Since managers of active funds choose stocks that are expected to raise their prices on the basis of the fundamental value, many argue that active funds discover the fundamental value and make a market more efficient. However, it has not been clear whether actual active funds make a market more efficient or not. It has been shown that active funds that trade infrequently earn more. At first glance, infrequent trades seem to not impact and change market prices and this leads to market prices not converging with the fundamental price. Therefore, it is important to discuss whether active funds that trade infrequently make a market more efficient or not, and if so, we should investigate the mechanism of how they do so. In this study, we built a model of investors who trade infrequently in an artificial market model, and we investigated effects of these investors on market prices and whether they make a market more efficient by using the model. The results indicate that such active investors trade frequently in the rare situation that the market becomes unstable and inefficient due to the market price moving away from the fundamental price. These trades, occurring only at a necessary time, impact the market prices and lead them converging with the fundamental price. This leads preventing the market from becoming more unstable and less efficient. Though the trading volume of fundamental investors is low throughout whole period, the volume increases greatly only when a market becomes less efficient, and these trades then make the market efficient. An increasing market volatility makes the order prices of speculators (technical investors) move further away from the fundamental price, and this leads to amplifying market volatility more excessively. It is possible that the orders of active investors prevent this amplification. This also implies that money moving from active funds to passive funds leads a market to become less efficient.