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Using realistic trading strategies in an agent-based stock market model

Author

Listed:
  • Bàrbara Llacay

    (Centre Internacional de Mètodes Numèrics en Enginyeria (CIMNE)
    University of Barcelona)

  • Gilbert Peffer

    (Centre Internacional de Mètodes Numèrics en Enginyeria (CIMNE)
    University of Barcelona)

Abstract

The use of agent-based models (ABMs) has increased in the last years to simulate social systems and, in particular, financial markets. ABMs of financial markets are usually validated by checking the ability of the model to reproduce a set of empirical stylised facts. However, other common-sense evidence is available which is often not taken into account, ending with models which are valid but not sensible. In this paper we present an ABM of a stock market which incorporates this type of common-sense evidence and implements realistic trading strategies based on practitioners literature. We next validate the model using a comprehensive approach consisting of four steps: assessment of face validity, sensitivity analysis, calibration and validation of model outputs.

Suggested Citation

  • Bàrbara Llacay & Gilbert Peffer, 2018. "Using realistic trading strategies in an agent-based stock market model," Computational and Mathematical Organization Theory, Springer, vol. 24(3), pages 308-350, September.
    • Handle: RePEc:spr:comaot:v:24:y:2018:i:3:d:10.1007_s10588-017-9258-0
    DOI: 10.1007/s10588-017-9258-0
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    Cited by:

    1. Kononovicius, Aleksejus & Ruseckas, Julius, 2019. "Order book model with herd behavior exhibiting long-range memory," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 171-191.
    2. Aleksejus Kononovicius & Vygintas Gontis, 2019. "Approximation of the first passage time distribution for the birth-death processes," Papers 1902.00924, arXiv.org.
    3. Aleksejus Kononovicius & Julius Ruseckas, 2018. "Order book model with herd behavior exhibiting long-range memory," Papers 1809.02772, arXiv.org, revised Apr 2019.

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    More about this item

    Keywords

    Agent-based simulation; Validation; Calibration; Stylised facts; Technical trading;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G1 - Financial Economics - - General Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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