Agent-Based Simulation and Microstructure Modeling of Immature Stock Markets

Authored by Hazem Krichene, Mhamed-Ali El-Aroui

Date Published: 2018

DOI: 10.1007/s10614-016-9615-y

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Flow charts Mathematical description

Model Code URLs: Model code not found

Abstract

This work presents an artificial order-driven market able to reproduce mature and immature stock markets properties in the case of a single traded asset. This agent-based artificial market is designed to simulate characteristics of immature stock markets (high risk and low efficiency) by reproducing their stylized facts related mainly to information asymmetry and herd behavior. These two properties are modeled by combining social network and multi-agent simulations. The constructed scale-free social network, linking the modeled investors, gives rise to both informed and uninformed agents communities. Different assortative topologies are proposed and linked to different degrees of information asymmetry and market maturities. Several simulation experiments show that the modeled information asymmetry and herd behavior succeed in reproducing artificially some important stylized facts characterizing differences between immature and mature stock markets.

Tags

Agent-based model information asymmetry herd behavior networks Network theory Returns Immature financial markets Assortative network