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Fundamentalists clashing over the book: a study of order-driven stock markets

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  • Marco Licalzi
  • Paolo Pellizzari

Abstract

Agent-based models of market dynamics must strike a compromise between the structural assumptions that represent the trading mechanism and the behavioural assumptions that describe the rules by which traders make their decisions. We present a structurally detailed model of an order-driven stock market and show that a minimal set of behavioural assumptions suffices to generate a leptokurtic distribution of short-term log-returns. This result supports the conjecture that the emergence of some statistical properties of financial time series is due to the microstructure of stock markets.

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File URL: http://www.tandfonline.com/doi/abs/10.1088/1469-7688/3/6/306
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 3 (2003)
Issue (Month): 6 ()
Pages: 470-480

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Handle: RePEc:taf:quantf:v:3:y:2003:i:6:p:470-480

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  1. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
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  3. repec:att:wimass:9625 is not listed on IDEAS
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  8. Matassini, Lorenzo & Franci, Fabio, 2001. "On financial markets trading," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 289(3), pages 526-542.
  9. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
  10. Bak, P. & Paczuski, M. & Shubik, M., 1997. "Price variations in a stock market with many agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 430-453.
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