By studying two well known hypotheses in economics, this paper illustrates how emergent properties can be shown in an agent-based artificial stock market. The two hypotheses considered are the efficient market hypothesis and the rational expectations hypothesis. We inquire whether the macrobehavior depicted by these two hypotheses is consistent with our understanding of the microbehavior. In this agent-based model, genetic programming is applied to evolving a population of traders learning over time. We first apply a series of econometric tests to show that the EMH and the REH can be satisfied with some portions of the artificial time series. Then, by analyzing traders’ behavior, we show that these aggregate results cannot be interpreted as a simple scaling-up of individual behavior. A conjecture based on sunspot-like signals is proposed to explain why macrobehavior can be very different from microbehavior. We assert that the huge search space attributable to genetic programming can induce sunspot-like signals, and we use simulated evolved complexity of forecasting rules and Granger causality tests to examine this assertion.
Journal of Economic Behavior and Organization,49(2),217-239