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A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions

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  • Giulia Iori

    (University of Essex)

Abstract

We 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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File URL: http://128.118.178.162/eps/fin/papers/0004/0004007.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0004007.

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Length: 28 pages
Date of creation: 25 Jul 2000
Date of revision:
Handle: RePEc:wpa:wuwpfi:0004007

Note: Type of Document - Tex; prepared on unix; to print on PostScript; pages: 28; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: Volatility clustering; fat tails; trading volume; herd behaviour.;

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