Direct comparison of agent-based models of herding in financial markets
Authored by Sylvain Barde
Date Published: 2016
DOI: 10.1016/j.jedc.2616.10.0o5
Sponsors:
No sponsors listed
Platforms:
MATLAB
Model Documentation:
Other Narrative
Model Code URLs:
https://www.kent.ac.uk/economics/1/zip3.html
Abstract
The present paper tests a new model comparison methodology by comparing
multiple calibrations of three agent-based models of financial markets
on the daily returns of 24 stock market indices and exchange rate
series. The models chosen for this empirical application are the herding
model of Gilli and Winker (2003), its asymmetric version by Alfarano et
al. (2005) and the more recent model by Franke and Westerhoff (2011), which all share a common lineage to the herding model introduced by
Kirman (1993). In addition, standard ARCH processes are included for
each financial series to provide a benchmark for the explanatory power
of the models. The methodology provides a consistent and statistically
significant ranking of the three models. More importantly, it also
reveals that the best performing model, Franke and Westerhoff, is
generally not distinguishable from an ARCH-type process, suggesting
their explanatory power on the data is similar. (C) 2016 Elsevier B.V.
All rights reserved.
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