An Asynchronous Double Auction Market to Study the Formation of Financial Bubbles and Crashes

Authored by Sadek Benhammada, Frederic Amblard, Salim Chikhi

Date Published: 2017

DOI: 10.1007/s00354-017-0010-6

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Flow charts Mathematical description

Model Code URLs: Model code not found

Abstract

Stock market is a complex system composed from heterogeneous traders with highly non-linear interactions from which emerge a phenomenon of speculative bubble. To understand the role of heterogeneous behaviors of traders and interactions between them in the emergence of bubbles, we propose an agent-based model of double auction market, with asynchronous time management, where traders act asynchronously and take different times to make decisions. The market is populated by heterogeneous traders. In addition to fundamentalist, noise, and technical (chartist) traders, we propose a hybrid trader, which can switch between technical (chartist) and fundamentalist strategies integrating panicking behavior. We find that when market is populated by a majority of hybrid traders, we observe quite realistic bubble formation characterized by a boom phase when hybrid traders switch to technical behavior, followed by a relatively shorter burst phase when hybrid traders return to fundamentalist strategy and change to panicked state. The aim is to design agents which act asynchronously, with simple behaviors, but complex enough to produce realistic price dynamics, which provide a basis for developing agents with sophisticated decision-making processes.

Tags

models Artificial stock market Multi-agent simulation Experimental asset markets Agent-based computational economic