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The cross section of stock returns in an artificial stock market

Author

Listed:
  • van Cappelle, Tjeerd
  • Pokidin, Dmytro
  • Zwinkels, Remco C.J.

Abstract

In this paper, we develop an Artificial Stock Market (ASM) - an agent-based simulation model of the stock market. We present the model and demonstrate its ability to replicate the main empirical features of equity markets. Our model can generate the stylized facts in the time-series domain such as the random walk property, long memory, excess volatility, negative skewness, and excess kurtosis. In the cross-section of stocks, the model generates excess co-movement as well as factor premia as in real-life equity markets. A well-defined ASM can generate large amounts of data, and function as a laboratory. Hence, it can be a complementary methodological approach to research in financial markets.

Suggested Citation

  • van Cappelle, Tjeerd & Pokidin, Dmytro & Zwinkels, Remco C.J., 2025. "The cross section of stock returns in an artificial stock market," Journal of Economic Behavior & Organization, Elsevier, vol. 239(C).
    • Handle: RePEc:eee:jeborg:v:239:y:2025:i:c:s0167268125003774
    DOI: 10.1016/j.jebo.2025.107258
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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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