MARKET FLUCTUATIONS EXPLAINED BY DIVIDENDS AND INVESTOR NETWORKS

Authored by Matthew Oldham

Date Published: 2017

DOI: 10.1142/s0219525917500072

Sponsors: No sponsors listed

Platforms: NetLogo

Model Documentation: Other Narrative Flow charts

Model Code URLs: Model code not found

Abstract

The inability of investors and academics to consistently predict, and understand the behavior of financial markets has forced the search for alternative analytical frameworks. Analyzing financial markets as complex systems is a framework that has demonstrated great promises, with the use of agent-based models (ABMs) and the inclusion of network science playing an important role in increasing the relevance of the framework. Using an artificial stock market created via an ABM, this paper provides a significant insight into the mechanisms that drive the returns in financial markets, including periods of elevated prices and excess volatility. The paper demonstrates that the network topology that investors form and the dividend policy of firms significantly a affect the behavior of the market. However, if investors have a bias to following their neighbors then the topology becomes redundant. By successfully addressing these issues this paper helps re refine and shape a variety of additional research tasks for the use of ABMs in uncovering the dynamics of financial markets.

Tags

Agent-based model Dynamics Artificial stock market networks Model information Computational finance Economy Dividend policy