Smart Agents and Sentiment in the Heterogeneous Agent Model

Lukas Vacha, Jozef Baruník and Miloslav Vošvrda

Prague Economic Papers, 2009, vol. 2009, issue 3, 209-219

Abstract: In this paper we extend the original heterogeneous agent model by introducing smart traders and changes in agents' sentiment. The idea of smart traders is based on the endeavor of market agents to estimate future price movements. By adding smart traders and changes in sentiment we try to improve the original heterogeneous agents model so that it provides a closer description of real markets. The main result of the simulations is that the probability distribution functions of the price deviations change significantly when smart traders are added to the model, and they also change significantly when changes in sentiment are introduced. We also use the Hurst exponent to measure the persistence of the price deviations and we find that the Hurst exponent is significantly increasing with the number of smart traders in the simulations. This means that the introduction of the smart traders concept into the model results in significantly higher persistence of the simulated price deviations. On the other hand, the introduction of changing sentiment in the proposed form does not change the persistence of the simulated prices significantly.

Keywords: market structure; Hurst exponent; heterogeneous agent model; smart traders (search for similar items in EconPapers)
JEL-codes: C15 D84 G14 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.18267/j.pep.350

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