Agent Based Model for Cardinality Constrained Portfolio Selection Problem: Preliminary Results

This paper presents a multi-agent model for the portfolio selection problem in presence of cardinality restriction on the number of stocks to be held in the portfolio. A system of agents divides the initial wealth and follows individual investment strategies starting with pseudo-random portfolios. Periodically, the agents share information about their performances, and can switch portfolios. A final cardinality constrained portfolio is constructed by consolidating individual portfolios formed by the agents based on the past performance of the stocks. The paper proposes the multi-agent model as an alternative to other popular decision models in finance in solving the cardinality constrained portfolio selection problem. The portfolio suggested by the agent based model has been found to perform better than the portfolios suggested by mean-variance models when tried out in real market.