Learning to forecast, risk aversion, and microstructural aspects of financial stability

Authored by Alessio Emanuele Biondo

Date Published: 2018

DOI: 10.5018/economics-ejournal.ja.2018-20

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas the risk aversion has, counterintuitively, the opposite effect.

Tags

agent-based simulation Simulation Agent-based models behavior Expectations Price dynamics Economics Chaos Model Order book Fluctuations Stock-market Book Limit order book Learning to forecast Risk aversion Limit-order markets