Is there any connection between the network morphology and the fluctuations of the stock market index?

Authored by F M Stefan, A P F Atman

Date Published: 2015

DOI: 10.1016/j.physa.2014.10.026

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative

Model Code URLs: Model code not found

Abstract

Models which consider behavioral aspects of the investors have attracted increasing interest in the Finance and Econophysics literature in the last years. Different behavioral profiles (imitation, anti-imitation, indifference) were proposed for the investors, which take their decision based on their trust network (neighborhood). Results from agent-based models have shown that most of the features observed in actual stock market indices can be replicated in simulations. Here, we present a deeper investigation of an agent based model considering different network morphologies (regular, random, small-world) for the investors' trust network, in an attempt to answer the question raised in the title. We study the model by considering four scenarios for the investors and different initial conditions to analyze their influence in the stock market fluctuations. We have characterized the stationary limit for each scenario tested, focusing on the changes introduced when complex networks were used, and calculated the Hurst exponent in some cases. Simulations showed interesting results suggesting that the fluctuations of the stock market index are strongly affected by the network morphology, a remarkable result which we believe was never reported or predicted before. (C) 2014 Elsevier B.V. All rights reserved.

Tags

Complex networks Evolution behavior time-series Dynamics minority game Small-world Cellular-automaton model Computational finance Psychology