IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-4-431-28915-9_28.html
   My bibliography  Save this book chapter

An agent-based model of financial returns in a limit order market

In: Practical Fruits of Econophysics

Author

Listed:
  • Koichi Hamada

    (Yale University)

  • Kouji Sasaki

    (Bank of Japan)

  • Toshiaki Watanabe

    (Tokyo Metropolitan University)

Abstract

Summary A set of finance literature shows that asset return processes are characterized by a GARCH class conditional volatility and fat-tail distributed disturbances, such as mixture of normal distributions and t-distribution (Watanabe 2000; Watanabe and Asai 2004). This paper finds that this type of complicated process arises by aggregating returns of a risky asset traded in a limit order market. The conditional volatility of generated return series can be modeled as a GARCH class since the volatility gradually diminishes as the price assimilates the new information about the future asset return. The reason why the error term of estimated model is fat-tail distributed is that the return of transaction prices is distributed as a mixture of normals; one of the two distributions represents the drift of the price process, and the other represents the liquidity effect.

Suggested Citation

  • Koichi Hamada & Kouji Sasaki & Toshiaki Watanabe, 2006. "An agent-based model of financial returns in a limit order market," Springer Books, in: Hideki Takayasu (ed.), Practical Fruits of Econophysics, pages 158-162, Springer.
    • Handle: RePEc:spr:sprchp:978-4-431-28915-9_28
    DOI: 10.1007/4-431-28915-1_28
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-4-431-28915-9_28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.