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The effects of behavioral and structural assumptions in artificial stock market

Listed author(s):
  • Liu, Xinghua
  • Gregor, Shirley
  • Yang, Jianmei
Registered author(s):

    Recent literature has developed the conjecture that important statistical features of stock price series, such as the fat tails phenomenon, may depend mainly on the market microstructure. This conjecture motivated us to investigate the roles of both the market microstructure and agent behavior with respect to high-frequency returns and daily returns. We developed two simple models to investigate this issue. The first one is a stochastic model with a clearing house microstructure and a population of zero-intelligence agents. The second one has more behavioral assumptions based on Minority Game and also has a clearing house microstructure. With the first model we found that a characteristic of the clearing house microstructure, namely the clearing frequency, can explain fat tail, excess volatility and autocorrelation phenomena of high-frequency returns. However, this feature does not cause the same phenomena in daily returns. So the Stylized Facts of daily returns depend mainly on the agents’ behavior. With the second model we investigated the effects of behavioral assumptions on daily returns. Our study implicates that the aspects which are responsible for generating the stylized facts of high-frequency returns and daily returns are different.

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    File URL: http://www.sciencedirect.com/science/article/pii/S037843710800006X
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 387 (2008)
    Issue (Month): 11 ()
    Pages: 2535-2546

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    Handle: RePEc:eee:phsmap:v:387:y:2008:i:11:p:2535-2546
    DOI: 10.1016/j.physa.2008.01.025
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Cincotti, Silvano & M. Focardi, Sergio & Marchesi, Michele & Raberto, Marco, 2003. "Who wins? Study of long-run trader survival in an artificial stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 227-233.
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    9. Raberto, Marco & Cincotti, Silvano & Focardi, Sergio M. & Marchesi, Michele, 2001. "Agent-based simulation of a financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 319-327.
    10. Liu, Xinghua & Liang, Xiaobei & Tang, Bingyong, 2004. "Minority game and anomalies in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 333(C), pages 343-352.
    11. Paul Jefferies & Michael Hart & Neil Johnson & P.M. Hui, 2001. "From market games to real-world markets," OFRC Working Papers Series 2001mf02, Oxford Financial Research Centre.
    12. Liu, Xing-Hua & Liang, Xiao-Bei & Wang, Nai-Jing, 2006. "Emergence of trend trading and its effects in minority game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 771-779.
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