On the plausibility of sunspot equilibria Simulations based on agent-based artificial stock markets

Authored by Chung-Chih Liao, Pei-Jung Chou

Date Published: 2008-06

DOI: 10.1007/s11403-008-0037-3

Sponsors: National Science Council of Taiwan

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

This study examines the plausibility of the emergence of sunspot equilibria in an agent-based artificial stock market. Using the agent-based model, we make the sunspots explicit so that we can test, e. g., by means of the Granger causality test, whether purely extrinsic uncertainty can influence price dynamics. In addition, through agent-based simulation, the coordination process, which is mainly driven by genetic programming, becomes observable, which enables us to analyze what agents perceive and whether they believe in sunspots. By manipulating different control variables, three series of experiments are conducted. Generally speaking, the chances of observing “sunspot equilibria” in this agent-based artificial stock market are small. However, the sunspot believers can never be driven out of the market. Nevertheless, they are always outnumbered by fundamental believers, which is evidence that the market as collective behavior is rational. We also find that lengthening the time horizon will make it difficult for sunspot believers to survive.

Tags

genetic programming Granger causality test Agent-based artificial stock markets Sunspots