A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions
AbstractWe propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns. In the model, synchronization effects, which generate large fluctuations in returns, can arise purely from communication and imitation among traders. The key element in the model is the introduction of a trade friction which, by responding to price movements, creates a feedback mechanism on future trading and generates volatility clustering. The model also reproduces the empirically observed positive cross- correlation between volatility and trading volume.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0004007.
Length: 28 pages
Date of creation: 25 Jul 2000
Date of revision:
Note: Type of Document - Tex; prepared on unix; to print on PostScript; pages: 28; figures: included
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Volatility clustering; fat tails; trading volume; herd behaviour.;
Other versions of this item:
- Iori, Giulia, 2002. "A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 269-285, October.
- Giulia Iori, 1999. "A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions," Finance 9905005, EconWPA.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-14 (All new papers)
- NEP-EVO-2001-02-14 (Evolutionary Economics)
- NEP-FMK-2001-02-14 (Financial Markets)
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