The effects of behavioral and structural assumptions in artificial stock market

Xinghua Liu, Shirley Gregor and Jianmei Yang

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 11, 2535-2546

Abstract: Recent literature has developed the conjecture that important statistical features of stock price series, such as the fat tails phenomenon, may depend mainly on the market microstructure. This conjecture motivated us to investigate the roles of both the market microstructure and agent behavior with respect to high-frequency returns and daily returns. We developed two simple models to investigate this issue. The first one is a stochastic model with a clearing house microstructure and a population of zero-intelligence agents. The second one has more behavioral assumptions based on Minority Game and also has a clearing house microstructure. With the first model we found that a characteristic of the clearing house microstructure, namely the clearing frequency, can explain fat tail, excess volatility and autocorrelation phenomena of high-frequency returns. However, this feature does not cause the same phenomena in daily returns. So the Stylized Facts of daily returns depend mainly on the agents’ behavior. With the second model we investigated the effects of behavioral assumptions on daily returns. Our study implicates that the aspects which are responsible for generating the stylized facts of high-frequency returns and daily returns are different.

Keywords: Stylized facts; Artificial stock market; Behavioral and structural assumptions; Minority game; Market clearing frequency (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:11:p:2535-2546

DOI: 10.1016/j.physa.2008.01.025

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