The roles of mean residence time on herd behavior in a financial market

Jiang-Cheng Li, Yun-Xian Li, Nian-Sheng Tang and Dong-Cheng Mei

Physica A: Statistical Mechanics and its Applications, 2016, vol. 462, issue C, 350-357

Abstract: We investigate the herd behavior of stock prices in a finance system with the Heston model. Based on parameter estimation of the Heston model obtained by minimizing the mean square deviation between the theoretical and empirical return distributions, we simulate mean residence time of positive return (MRTPR). Plots of MRTPR against the amplitude or mean reversion of volatility demonstrate a phenomenon of herd behavior for a positive cross correlation between noise sources of the Heston model. Also, for a negative cross correlation, a phenomenon of herd behavior is observed in plots of MRTPR against the long-run variance by increasing amplitude or mean reversion of volatility.

Keywords: Financial market; Heston model; Herd behavior; Mean residence time; Econophysics (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:462:y:2016:i:c:p:350-357

DOI: 10.1016/j.physa.2016.06.061

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