This paper reports statistical analyses performed on simulated data from a stochastic multi-agent model of speculative behaviour in a financial market. The price dynamics resulting from this artificial market process exhibits the same type of scaling laws as do empirical data from stock markets and foreign exchange markets: (i) one observes scaling in the probability distribution of relative price changes with a Pareto exponent around 2.6, (ii) volatility shows significant long-range correlation with a self-similarity parameter H around 0.85. This happens although we assume that news about the intrinsic or fundamental value of the asset follows a white noise process and, hence, incorporation of news about fundamental factors is insufficient to explain either of the characteristics (i) or (ii). As a consequence, in our model, the main stylised facts of financial data originate from the working of the market itself and one need not resort to scaling in unobservable extraneous signals as an explanation of the source of scaling in financial prices. The emergence of power laws can be explained by the existence of a critical state which is repeatedly approached in the course of the system's development.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number
438.
Length: pages Date of creation: Date of revision:
Jul 1998 Handle: RePEc:bon:bonsfb:438
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=517
For technical questions regarding this item, or to correct its listing, contact: (Daniel Park).
Find related papers by JEL classification: C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)