QUEUING, SOCIAL INTERACTIONS, AND THE MICROSTRUCTURE OF FINANCIAL MARKETS

Ulrich Horst and Christian Rothe

Macroeconomic Dynamics, 2008, vol. 12, issue 2, 211-233

Abstract: We consider an agent-based model of financial markets with asynchronous order arrival in continuous time. Buying and selling orders arrive in accordance with a Poisson dynamics where the order rates depend both on past prices and on the mood of the market. The agents form their demand for an asset on the basis of their forecasts of future prices and their forecasting rules may change over time as a result of the influence of other traders. Among the possible rules are “chartist” or extrapolatory rules. We prove that when chartists are in the market, and with choice of scaling, the dynamics of asset prices can be approximated by an ordinary delay differential equation. The fluctuations around the first-order approximation follow an Ornstein–Uhlenbeck dynamics with delay in a random environment of investor sentiment.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:12:y:2008:i:02:p:211-233_07

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().