NewScientist.com news service
Katharine Davis

A model that assumes stock market traders have zero intelligence has been found to mimic the behaviour of the London Stock Exchange very closely.
However, the surprising result does not mean traders are actually just buying and selling at random, say researchers. Instead, it suggests that the movement of markets depend less on the strategic behaviour of traders and more on the structure and constraints of the trading system itself.

The research, led by J Doyne Farmer and his colleagues at the Santa Fe Institute, New Mexico, US, say the finding could be used to identify ways to lower volatility in the stock markets and reduce transaction costs, both of which would benefit small investors and perhaps bigger investors too.

A spokesperson for the London Stock Exchange says: "It's an interesting bit of work that mirrors things we're looking at ourselves."