This paper describes a set of experiments performed with an artificial futures market simulation. The non-rational market participants, which evolve simple strategies using genetic algorithms, compete against each other to make profits by buying and selling futures contracts. The dynamic and equilibrium behavior of the participants is studied under a variety of conditions. The results suggest that in simple markets with non-homogenous participants opportunities for making consistent profits over extended periods of time exist. Introduction Although futures contracts are a relatively recent addition to the cornucopia of financial products available to market participants, their rate of growth has positioned them as one of the most traded financial vehicles in the world. Scalpers, day traders, institutions, and hedgers all compete to exchange risk and return in ways that meet their objectives. All participants in the market have data about the cumulative actions of all of the other part...

This paper documents strong evidence of behavioral biases among Chicago Board of Trade proprietary traders and investigates the effect these biases have on prices. Our traders appear highly loss-averse. Traders who experience morning losses are about 15 percent more likely to assume above-average afternoon risk than traders with morning gains. This behavior has important short-term consequences for afternoon prices, as losing traders actively purchase contracts at higher prices and sell contracts at lower prices than those that prevailed previously. However, during the Þve minutes that follow these trades, prices revert strongly to their earlier levels. Consistent with these Þndings, short-term afternoon price volatility is positively related to the prevalence of morning losses among locals, but overall afternoon price volatility is not.

Most recent draft of this paper is available at: www.wwa.com/~mosers/papers.htm I am indebted to the Chicago Board of Trade for making their archives available for this research and to Owen Gregory for helping my access of these archives. The paper has

Price discovery is identified as being the recipient of increased attention during the 1980s and 1990s. Indeed, the authors suggest that the focus of attention is becoming even more intense during the 1990s. They refer to the petition for a rule change that was presented to the Secretary of Agriculture in October of 1996 by the Western Organization of Resource Councils (WORC). The petition calls for regulations or restrictions on how packers/processors could buy cattle. Specifically, the petition asks for the banning of, or control of, what has come to be known as “captive supply ” instruments such as cash forward contracts, basis contracts calling for later delivery, and formula price contracts, where the final cash price is tied to some visible market price or index. The authors suggest that part of the motivation for such proposed regulations comes from concern about the effectiveness and viability of the price discovery process. They go on to point out that it is not the price discovery process that was responsible for the low calf prices in 1995 and 1996, during a period of record high corn prices, and that the economic system must determine a price that is consistent with that needed to clear