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A microsimulation of traders activity in the stock market: the role of heterogeneity, agents' interactions and trade frictions

  • Giulia Iori

    (University of Essex)

We propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns. In the model, synchronization effects, which generate large fluctuations in returns, can arise purely from communication and imitation among traders. The key element in the model is the introduction of a trade friction which, by responding to price movements, creates a feedback mechanism on future trading and generates volatility clustering. The model also reproduces the empirically observed positive cross- correlation between volatility and trading volume.

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File URL: http://econwpa.repec.org/eps/fin/papers/0004/0004007.pdf
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Paper provided by EconWPA in its series Finance with number 0004007.

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Length: 28 pages
Date of creation: 25 Jul 2000
Date of revision:
Handle: RePEc:wpa:wuwpfi:0004007
Note: Type of Document - Tex; prepared on unix; to print on PostScript; pages: 28; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Yanhui Liu & Parameswaran Gopikrishnan & Pierre Cizeau & Martin Meyer & Chung-Kang Peng & H. Eugene Stanley, 1999. "The statistical properties of the volatility of price fluctuations," Papers cond-mat/9903369, arXiv.org, revised Mar 1999.
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  17. Stauffer, Dietrich & Sornette, Didier, 1999. "Self-organized percolation model for stock market fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 271(3), pages 496-506.
  18. Zhang, Yi-Cheng, 1999. "Toward a theory of marginally efficient markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 30-44.
  19. Parameswaran Gopikrishnan & Vasiliki Plerou & Luis A. Nunes Amaral & Martin Meyer & H. Eugene Stanley, 1999. "Scaling of the distribution of fluctuations of financial market indices," Papers cond-mat/9905305, arXiv.org.
  20. Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
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