Semiclosed Pricing Mechanism
This paper aims at designing the different important components of a semi-closed simulated stock market (pricing mechanism, stock allocation and news generation). The purpose is to understand the interactions of the different aspects within a 'semi-closed' system. The complexity and nature of the system led to the process of modifying the pricing mechanism which is viewed from a different angle to the classical Brownian Motion and the Random Walk model. However, it incorporates the essence of these two fundamental theories and then investigates the matrix of investors' behaviours in relation to news feedbacks. This paper also explores the realm of randomly generated news to the responses of participants to determine rational and irrational behaviours. This is carried out through uncompressing the time within the experiment and looking at concordant and disconcordant behaviour. The focus is on how the modified pricing equation adapts to the conditions and uniqueness surrounding a semi-closed stock market. Thus, this paper looks at how a simple market system where the main determinants of share prices are news, demand and supply along with some filtering of the external forces can affect the behaviours of investors in terms of their portfolio composition. The return distributions can then be stipulated as arising from rational or irrational trajectories and subsequently be simulated and matched via the proposed modified Brownian Motion model to empirical return distributions in specific time periods and markets.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1112.0342. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.