NOISY TRADER BEHAVIOR IN ADAPTIVE MARKETS: DECISION-MAKING BIASES AND MODELING APPROACHES

Authors

DOI:

https://doi.org/10.46991/BYSU.G/2025.16.1.004

Keywords:

adaptive markets, noisy traders, decision-making biases, neural networks, biasdriven behavior

Abstract

Noisy traders are market participants whose decisions often deviate from rational behavior, influenced instead by emotions, speculation, and social cues rather than fundamental financial information. Traditional financial theories tend to assume that markets are efficient and that investors act rationally to maximize utility. However, in reality, financial markets are frequently influenced by various behavioral biases, especially those exhibited by noisy traders, leading to unpredictable market dynamics.

The Adaptive Markets Hypothesis (AMH) offers a framework for understanding markets that accounts for the changing and adaptive nature of investor behavior over time. According to AMH, investors continuously adjust their strategies based on environmental changes, learning from past experiences, and adapting to new circumstances. This approach allows for the inclusion of different types of market participants, including noisy traders, whose biases can impact market efficiency and create volatility.

This research explores how decision-making biases among noisy traders, such as overconfidence, confirmation bias, and herd behavior, influence market behavior in adaptive markets. By examining the role of these biases, we gain insight into how they contribute to market anomalies and influence the pricing and volatility of financial assets.

Author Biographies

  • Davit Hayrapetyan, Yerevan State University
    Associate Professor | Chair of General Psychology, Yerevan State University  
  • Hayk Melkumyan, Yerevan State University

    Master student, Master's program of Financial Mathematics, Faculty of Mathematics and Mechanics, YSU. E-mail: svetlana.shakhanumyan@edu.ysu.am

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Published

2025-01-30

Issue

Vol. 15 No. 2 (44) (2024)

Section

Management

License

Copyright (c) 2025 Davit Hayrapetyan, Hayk Melkumyan

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

How to Cite

Hayrapetyan, D., & Melkumyan, H. (2025). NOISY TRADER BEHAVIOR IN ADAPTIVE MARKETS: DECISION-MAKING BIASES AND MODELING APPROACHES. Bulletin of Yerevan University G: Economics, 15(2 (44), 57-66. https://doi.org/10.46991/BYSU.G/2025.16.1.004