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Properties of the wealth process in a market microstructure model

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  • Theodosopoulos, Ted
  • Yuen, Ming

Abstract

In this short paper we define the wealth process in a spin model for market microstructure, for individual agents and in aggregate. The agents in our model try to balance their desire to belong to the local majority (herding behavior), defined over random network neighborhoods, and the occasional advantage of belonging to the global minority (contrarian trading). We arrive at a classification of the martingale properties of this wealth process and use it to determine the strategic stability of the agents’ interactions. Our goal is to add a behavioral interpretation to this stochastic agent-based model for market fluctuations.

Suggested Citation

  • Theodosopoulos, Ted & Yuen, Ming, 2007. "Properties of the wealth process in a market microstructure model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 378(2), pages 443-452.
    • Handle: RePEc:eee:phsmap:v:378:y:2007:i:2:p:443-452
    DOI: 10.1016/j.physa.2006.12.030
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    References listed on IDEAS

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    1. Majka, Arkadiusz & Wiślicki, Wojciech, 2004. "Statistical thermodynamics for choice models on graphs," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 337(3), pages 645-663.
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    4. Kaizoji, Taisei & Bornholdt, Stefan & Fujiwara, Yoshi, 2002. "Dynamics of price and trading volume in a spin model of stock markets with heterogeneous agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 441-452.
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    Cited by:

    1. Theodosopoulos, Ted & Boyer, Robert, 2007. "Periodic attractors of random truncator maps," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 302-310.

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