The Effect of Naïve Reinforcement Learning in the Stock Market

23 Pages Posted: 7 Apr 2019

See all articles by Sunghoon Park

Sunghoon Park

Seoul National University

Sungzoon Cho

affiliation not provided to SSRN

Date Written: December 1, 2015

Abstract

Some investors who are subjected to naïve reinforcement learning create a spread between a stock’s fundamental value and its equilibrium price. Naïve learners are more likely to repurchase a stock previously sold for a gain than one sold for a loss. This causes predictable equilibrium prices. We propose a proxy for the effect of naïve learning and show the profitability of a long-short strategy based on our proxy.

Keywords: naïve reinforcement learning, bahavioral bias, stock market

JEL Classification: G41, C51

Suggested Citation

Park, Sunghoon and Cho, Sungzoon, The Effect of Naïve Reinforcement Learning in the Stock Market (December 1, 2015). Available at SSRN: https://ssrn.com/abstract=3346046

Sunghoon Park (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Sungzoon Cho

affiliation not provided to SSRN

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