A simulated electronic market with speculative behaviour and bubble formation

Nicolas Cofre and Magdalena Mosionek-Schweda

Finance Research Letters, 2024, vol. 67, issue PA

Abstract: This paper presents an agent-based model of an electronic market with two types of trading agents. One type follows a mean reverting strategy and the other, the speculative trader, tracks the maximum realized return. Our research provides synthetic datasets of the order book (level 3) to study its dynamics under different levels of speculation. Inspired by the GameStop trading frenzy, we study the impact of a trading halt by the market maker on one side of the order book. We have also tested a performance-based limit on leverage, that allows leverage only to profitable traders.

Keywords: Artificial market; Simulation; Agent-based model; Multi-agent systems; Speculation; Financial bubble formation; Algorithmic trading (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s154461232400775x

DOI: 10.1016/j.frl.2024.105745

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