Investor structure and the price–volume relationship in a continuous double auction market: An agent-based modeling perspective

Wei Zhang, Zhengzheng Bi and Dehua Shen

Physica A: Statistical Mechanics and its Applications, 2017, vol. 467, issue C, 345-355

Abstract: This paper investigates the impact of investor structure on the price–volume relationship by simulating a continuous double auction market. Connected with the underlying mechanisms of the price–volume relationship, i.e., the Mixture of Distribution Hypothesis (MDH) and the Sequential Information Arrival Hypothesis (SIAH), the simulation results show that: (1) there exists a strong lead-lag relationship between the return volatility and trading volume when the number of informed investors is close to the number of uninformed investors in the market; (2) as more and more informed investors entering the market, the lead-lag relationship becomes weaker and weaker, while the contemporaneous relationship between the return volatility and trading volume becomes more prominent; (3) when the informed investors are in absolute majority, the market can achieve the new equilibrium immediately. Therefore, we can conclude that the investor structure is a key factor in affecting the price–volume relationship.

Keywords: Investor structure; Price-volume relationship; MDH; SIAH; Agent-based modeling; Continuous double auction market (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:467:y:2017:i:c:p:345-355

DOI: 10.1016/j.physa.2016.10.044

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