Agent-Based Simulation and Microstructure Modeling of Immature Stock Markets

Hazem Krichene () and Mhamed-Ali El-Aroui
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Hazem Krichene: Université de Tunis, ISG de Tunis, LARODEC
Mhamed-Ali El-Aroui: Université de Carthage, FSEG Nabeul and LARODEC

Computational Economics, 2018, vol. 51, issue 3, No 6, 493-511

Abstract: Abstract This work presents an artificial order-driven market able to reproduce mature and immature stock markets properties in the case of a single traded asset. This agent-based artificial market is designed to simulate characteristics of immature stock markets (high risk and low efficiency) by reproducing their stylized facts related mainly to information asymmetry and herd behavior. These two properties are modeled by combining social network and multi-agent simulations. The constructed scale-free social network, linking the modeled investors, gives rise to both informed and uninformed agents communities. Different assortative topologies are proposed and linked to different degrees of information asymmetry and market maturities. Several simulation experiments show that the modeled information asymmetry and herd behavior succeed in reproducing artificially some important stylized facts characterizing differences between immature and mature stock markets.

Keywords: Agent-based model; Immature financial markets; Network theory; Information asymmetry; Herd behavior; Assortative network (search for similar items in EconPapers)
JEL-codes: C58 C63 G12 G14 G15 G17 O16 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10614-016-9615-y

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