Dispersal of information into share markets : a stochastic model simulation
Thesis (MBA)--Stellenbosch University, 2012.
This research report examines the dispersal of information into the share market. According to the efficient market hypothesis, the share price always reflects all available information on a company. This information is incorporated into the share price via heterogeneous trader interaction: a transaction between a willing buyer and a willing seller sets the latest share price. Therefore, the dispersal of information is a dynamic process. This process has been modelled with a newly developed micro-economic, stochastic, dynamic model for share price based on trader interaction. The model has been implemented as a Monte Carlo simulation with several supporting metrics to assess simulation results. Extensive Monte Carlo simulations have been performed to validate the model and to examine the dispersal and value of information. Key findings are that trader interaction is a dominant effect in both the dispersal of information and portfolio performance; technical trading, i.e. trading on only past share price information, can be beneficial under certain conditions; technical trading causes the share price to increase significantly compared to rational trading; information is more valuable for fast changing markets and small companies. The findings from Monte Carlo simulation have been compared with sectors of the Johannesburg Stock Exchange and advice is provided with regards to the value of information per sector.