Time in economics and speculation

In this work, three different forms of time are experienced in speculative activities. According to first form, time is an existence which has informative features for economic agents. In this respect, there is no informative difference between agent activities or inactivities. In the second form, time is an edogenous factor, such that, timing of economic decisions depends on numbers and payoffs of probable choices, besides biological, physicological and intellectual factors. The third and the last insight asserts that time is an exogenous factor in speculative activity in which some agents use it as a tool for manipulating the other agents? market behaviors during dynamic speculative activity or attack. Three forms of time were used in modelling stock market oriented representative speculator behavior. Before modelling, assertions of mainstream finance literature and its anomalies were examined. In addition, memory structure and normality of market returns in international markets, including Istanbul Stock Exchange, were analysed. Simple speculative behavior models were built in direction of analysis results. The first speculation model (expectational speculation) was based on price expectations and long memory of stock market returns. Afterwards, model was enlarged to allow represantative speculator to behave strategically against the other agents (dynamic speculation). After building models, profitability of expectational speculation was tested in international stock markets. Profitability of dynamic speculation was also tested in an artificial stock market and significant excess returns were observed in both models. In order to make the artificial stock market more realistic, the risk/gain biases and time structure of financial decisions of ordinary investors were analysed by using two tests and non-speculator behaviors in artificial market were created based on test results. Finally, the effect of speculative activity on the stability of prices was investigated. According to our results, ordinary investors and noise traders were found the most active investor groups during periods of high volatility in stock returns. Keywords: real time, speculation, long memory, reaction time, artificial market