Some new results on the Levy, Levy and Solomon microscopic stock market model

Elmar Zschischang and Thomas Lux

Physica A: Statistical Mechanics and its Applications, 2001, vol. 291, issue 1, 563-573

Abstract: We report some findings from our simulations of the Levy, Levy and Solomon microscopic stock market model. Our results cast doubts on some of the results published in the original papers (i.e., chaotic stock price movements). We also point out the possibility of sensitive dependence on initial conditions of the emerging wealth distribution among agents. Extensions of the model set-up show that with varying degrees of risk aversion, the less risk averse traders will tend to dominate the market. Similarly, when introducing a new trader group (or even a single trader) with a constant share of stocks in their portfolio, the latter will eventually take over and marginalize the other groups. The better performance of the more sober investors is in accordance with traditional perceptions in financial economics. Hence, the survival of ‘noise traders’ looking at short-term trends and patterns remains as much of a puzzle in this framework as in the traditional Efficient Market Theory.

Keywords: Stock market simulation; Microscopic model; Heterogeneous agents (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:291:y:2001:i:1:p:563-573

DOI: 10.1016/S0378-4371(00)00609-9

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