Speculative behavior and the dynamics of interacting stock markets

Noemi Schmitt and Frank Westerhoff

Journal of Economic Dynamics and Control, 2014, vol. 45, issue C, 262-288

Abstract: We develop a simple agent-based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets. Speculators׳ strategy/market selections are repeated at each time step and depend on predisposition effects, herding behavior and market circumstances. Simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets, including bubbles and crashes, fat-tailed return distributions, volatility clustering, persistent trading volume, coevolving stock prices and cross-correlated volatilities. Against this background, our model may be deemed to have been validated.

Keywords: Stock markets; Comovements; Cross-correlations; Technical and fundamental analysis; Agent-based modeling; Simulation analysis (search for similar items in EconPapers)
JEL-codes: C63 D84 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (29)

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Working Paper: Speculative behavior and the dynamics of interacting stock markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:45:y:2014:i:c:p:262-288

DOI: 10.1016/j.jedc.2014.05.009

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