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 (https://doi.org/10.1140/epjb/e2007-00108-5)

[thumbnail of strathprints006210]
Preview
 Text. Filename: strathprints006210.pdf
Accepted Author Manuscript
Download (249kB)| Preview

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.

CORE (COnnecting REpositories)