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File:
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[pdf]
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Title:
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Characterizing Effective Trading Strategies
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Authors:
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John Rust, John H. Miller, and Richard Palmer
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Key Words:
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Double Auction Tournament, Trading Strategy, Learning
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Abstract:
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This paper presents a comparative analysis of 30 computer trading programs
that participated in a double auction tournament held at the Santa Fe Institute
in 1990 and 1991. Our objective is to characterize the form of effective trading
strategies in double auction markets. We find that a simple rule-of-thumb is a highly
effective and robust performer over a wide range of trading environments, significantly
out performing more complex algorithms that use statistically-based predictions of
future transaction prices, explicit optimizing principles, and sophisticated ‘learning
algorithms.’
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