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Market Fluctuations Explained By Dividends And Investor Networks

Author

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  • MATTHEW OLDHAM

    (Department of Computational and Data Sciences, 4400 University Drive, Fairfax, Virginia 22030, USA)

Abstract

The inability of investors and academics to consistently predict, and understand the behavior of financial markets has forced the search for alternative analytical frameworks. Analyzing financial markets as complex systems is a framework that has demonstrated great promises, with the use of agent-based models (ABMs) and the inclusion of network science playing an important role in increasing the relevance of the framework. Using an artificial stock market created via an ABM, this paper provides a significant insight into the mechanisms that drive the returns in financial markets, including periods of elevated prices and excess volatility. The paper demonstrates that the network topology that investors form and the dividend policy of firms significantly affect the behavior of the market. However, if investors have a bias to following their neighbors then the topology becomes redundant. By successfully addressing these issues this paper helps refine and shape a variety of additional research tasks for the use of ABMs in uncovering the dynamics of financial markets.

Suggested Citation

  • Matthew Oldham, 2017. "Market Fluctuations Explained By Dividends And Investor Networks," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-28, December.
    • Handle: RePEc:wsi:acsxxx:v:20:y:2017:i:08:n:s0219525917500072
    DOI: 10.1142/S0219525917500072
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    Cited by:

    1. Matthew Oldham, 2019. "Understanding How Short-Termism and a Dynamic Investor Network Affects Investor Returns: An Agent-Based Perspective," Complexity, Hindawi, vol. 2019, pages 1-21, July.

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