Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models
Noemi Schmitt () and
Frank Westerhoff ()
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Noemi Schmitt: University of Bamberg
Journal of Evolutionary Economics, 2017, vol. 27, issue 5, 1041-1070
Abstract We propose a novel agent-based financial market framework in which speculators usually follow their own individual technical and fundamental trading rules to determine their orders. However, there are also sunspot-initiated periods in which their trading behavior is correlated. We are able to convert our (very) simple large-scale agent-based model into a simple small-scale agent-based model and show that our framework is able to produce bubbles and crashes, excess volatility, fat-tailed return distributions, serially uncorrelated returns and volatility clustering. While lasting volatility outbursts occur if the mass of speculators switches to technical analysis, extreme price changes emerge if sunspots coordinate temporarily the behavior of speculators.
Keywords: Financial markets; Stylized facts; Agent-based models; Technical and fundamental analysis; Heterogeneity and coordination; Sunspots and extreme events (search for similar items in EconPapers)
JEL-codes: C63 D84 G15 (search for similar items in EconPapers)
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