A Dynamic Analysis of the Microstructure of Moving Average Rules in a Double Auction Market
AbstractInspired by the theoretically oriented dynamic analysis of moving average rules in Chiarella, He and Hommes (CHH) (2006a) model, this paper conducts a dynamic analysis of a microstructure model of continuous double auctions in which the probability of heterogeneous agents to trade is determined by the rules of either fundamentalists mean-reverting to the fundamental or chartists choosing moving average rules based their relative performance. With such a realistic market microstructure, the model is able not only to obtain the results of the CHH model but also to characterise most of the stylized facts including the power-law behaviour of volatility. The results seem to suggest that a comprehensive explanation of several statistical properties of returns is possible in a framework where both behavioral traits and realistic microstructure have a role.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 251.
Date of creation: 01 Jul 2009
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microstructure model; continuous double auctions; heterogeneous agents; stylized facts;
Other versions of this item:
- Chiarella, Carl & He, Xue-Zhong & Pellizzari, Paolo, 2012. "A Dynamic Analysis Of The Microstructure Of Moving Average Rules In A Double Auction Market," Macroeconomic Dynamics, Cambridge University Press, vol. 16(04), pages 556-575, September.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
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