Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models
Authored by Noemi Schmitt, Frank Westerhoff
Date Published: 2017
DOI: 10.1007/s00191-017-0504-x
Sponsors:
European Union
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
We propose a novel agent-based financial market framework in which
speculators usually follow their own individual technical and
fundamental trading rules to determine their orders. However, there are
also sunspot-initiated periods in which their trading behavior is
correlated. We are able to convert our (very) simple large-scale
agent-based model into a simple small-scale agent-based model and show
that our framework is able to produce bubbles and crashes, excess
volatility, fat-tailed return distributions, serially uncorrelated
returns and volatility clustering. While lasting volatility outbursts
occur if the mass of speculators switches to technical analysis, extreme
price changes emerge if sunspots coordinate temporarily the behavior of
speculators.
Tags
Agent-based models
financial markets
Dynamics
herd behavior
Volatility
stylized facts
Sunspots
Strategies
Fluctuations
Prices
Artificial stock-market
Speculative behavior
Technical and
fundamental analysis
Heterogeneity and coordination
Sunspots and
extreme events
Asset pricing-models