A simulation analysis of the microstructure of double auction markets
We introduce an order-driven market model with heterogeneous agents trading via a central order matching mechanism. Traders set bids and asks and post market or limit orders according to exogenously fixed rules. We investigate how different trading strategies may affect the dynamics of price, bid-ask spreads, trading volume and volatility. We also analyse how some features of market design, such as tick size and order lifetime, affect market liquidity. The model is able to reproduce many of the complex phenomena observed in real stock markets.
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Volume (Year): 2 (2002)
Issue (Month): 5 ()
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- Xue-Zhong (Tony) He & Carl Chiarella, 2001.
"Asset Price and Wealth Dynamics under Heterogeneous Expectations,"
CeNDEF Workshop Papers, January 2001
5A.2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- C. Chiarella & X-Z. He, 2001. "Asset price and wealth dynamics under heterogeneous expectations," Quantitative Finance, Taylor & Francis Journals, vol. 1(5), pages 509-526.
- Carl Chiarella & Xue-Zhong He, 2001. "Asset Price and Wealth Dynamics Under Heterogeneous Expectations," Research Paper Series 56, Quantitative Finance Research Centre, University of Technology, Sydney.
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- Brock, W.A. & Hommes, C.H., 1996. "Hetergeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model," Working papers 9621, Wisconsin Madison - Social Systems.
- Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
- Martens, Martin, 1998. "Price discovery in high and low volatility periods: open outcry versus electronic trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 243-260, December.
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