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Stylized facts from a threshold-based heterogeneous agent model

Cross, R. and Grinfeld, M. and Lamba, H. and Seaman, T. (2007) Stylized facts from a threshold-based heterogeneous agent model. European Physical Journal B - Condensed Matter and Complex Systems, 57 (2). pp. 213-218. ISSN 1434-6028

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    Abstract

    A class of heterogeneous agent models is investigated where investors switch trading position whenever their motivation to do so exceeds some critical threshold. These motivations can be psychological in nature or reflect behaviour suggested by the efficient market hypothesis (EMH). By introducing different propensities into a baseline model that displays EMH behaviour, one can attempt to isolate their effects upon the market dynamics. The simulation results indicate that the introduction of a herding propensity results in excess kurtosis and power-law decay consistent with those observed in actual return distributions, but not in significant long-term volatility correlations. Possible alternatives for introducing such long-term volatility correlations are then identified and discussed.

    Item type: Article
    ID code: 6210
    Keywords: heterogeneous agent models, simulation, efficient market hypothesis, Physics, Electronic, Optical and Magnetic Materials, Condensed Matter Physics
    Subjects: Science > Physics
    Department: Strathclyde Business School > Economics
    Faculty of Science > Mathematics and Statistics
    Related URLs:
    Depositing user: Miss Darcy Spiller
    Date Deposited: 02 Jun 2008
    Last modified: 05 Sep 2014 13:41
    URI: http://strathprints.strath.ac.uk/id/eprint/6210

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