Stylized facts of financial markets and market crashes in Minority Games

Damien Challet, Matteo Marsili and Yi-Cheng Zhang

Physica A: Statistical Mechanics and its Applications, 2001, vol. 294, issue 3, 514-524

Abstract: We present and study a Minority Game based model of a financial market where adaptive agents—the speculators—interact with deterministic agents—called producers. Speculators trade only if they detect predictable patterns which grant them a positive gain. Indeed the average number of active speculators grows with the amount of information that producers inject into the market. Transitions between equilibrium and out of equilibrium behavior are observed when the relative number of speculators to the complexity of information or to the number of producers are changed. When the system is out of equilibrium, stylized facts arise, such as fat tailed distribution of returns and volatility clustering. Without speculators, the price follows a random walk; this implies that stylized facts arise because of the presence of speculators. Furthermore, if speculators abandon price taking behavior, stylized facts disappear.

Keywords: Minority Game; Financial markets; Stylized facts; Grand canonical (search for similar items in EconPapers)
Date: 2001
References: View complete reference list from CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437101001030
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
Working Paper: Stylized facts of financial markets and market crashes in Minority Games (2001)
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:eee:phsmap:v:294:y:2001:i:3:p:514-524

DOI: 10.1016/S0378-4371(01)00103-0

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().