Overall fluctuations and fat tails in an artificial financial market: The two-sided impact of leveraged trading
Authored by G Yang, C G Zhu, K N An, J P Huang
Date Published: 2015
DOI: 10.1016/j.physleta.2015.04.018
Sponsors:
Chinese National Natural Science Foundation
Ying Tung Education Foundation
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
Recent years have seen leveraged trading playing an increasingly
important role in financial markets. However, the effect of leverage on
the markets is still an open question. Here, we introduce a framework to
investigate leveraged trading through both agent-based simulations and
controlled human experiments on a one-stock artificial market. It shows
that leverage increases the market risks, and at the same time decreases
the outbreak probabilities of financial bubbles or crises. This work
helps to understand the impact of leverage on financial markets
appropriately. (C) 2015 Elsevier B.V. All rights reserved.
Tags
Agent-based models
Liquidity
bubbles
complex adaptive system
investment
Stock-market
Phase-transitions
Herd
behavior
Asset markets
Economy