Speculative behavior and the dynamics of interacting stock markets

Authored by Noemi Schmitt, Frank Westerhoff

Date Published: 2014-08

DOI: 10.1016/j.jedc.2014.05.009

Sponsors: European Union

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We develop a simple agent-based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets. Speculators' strategy/market selections are repeated at each time step and depend on predisposition effects, herding behavior and market circumstances. Simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets, including bubbles and crashes, fat-tailed return distributions, volatility clustering, persistent trading volume, coevolving stock prices and cross-correlated volatilities. Against this background, our model may be deemed to have been validated. (C) 2014 Elsevier B.V. All rights reserved.

Tags

Agent-based modeling Comovements Cross-correlations Simulation analysis Stock markets Technical and fundamental analysis