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Agent-Based Simulation and Microstructure Modeling of Immature Stock Markets

Author

Listed:
  • Hazem Krichene

    (Université de Tunis, ISG de Tunis, LARODEC)

  • Mhamed-Ali El-Aroui

    (Université de Carthage, FSEG Nabeul and LARODEC)

Abstract

This work presents an artificial order-driven market able to reproduce mature and immature stock markets properties in the case of a single traded asset. This agent-based artificial market is designed to simulate characteristics of immature stock markets (high risk and low efficiency) by reproducing their stylized facts related mainly to information asymmetry and herd behavior. These two properties are modeled by combining social network and multi-agent simulations. The constructed scale-free social network, linking the modeled investors, gives rise to both informed and uninformed agents communities. Different assortative topologies are proposed and linked to different degrees of information asymmetry and market maturities. Several simulation experiments show that the modeled information asymmetry and herd behavior succeed in reproducing artificially some important stylized facts characterizing differences between immature and mature stock markets.

Suggested Citation

  • Hazem Krichene & Mhamed-Ali El-Aroui, 2018. "Agent-Based Simulation and Microstructure Modeling of Immature Stock Markets," Computational Economics, Springer;Society for Computational Economics, vol. 51(3), pages 493-511, March.
    • Handle: RePEc:kap:compec:v:51:y:2018:i:3:d:10.1007_s10614-016-9615-y
    DOI: 10.1007/s10614-016-9615-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Agent-based model; Immature financial markets; Network theory; Information asymmetry; Herd behavior; Assortative network;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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