CROSS-MARKET FINANCIAL RISK ANALYSIS: AN AGENT-BASED COMPUTATIONAL FINANCE

Xiong Xiong, Mei Wen (), Wei Zhang () and Yong Jie Zhang ()
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Xiong Xiong: College of Management and Economics, Tianjin University, Tianjin 300072, China
Mei Wen: College of Management and Economics, Tianjin University, Tianjin 300072, China
Wei Zhang: College of Management and Economics, Tianjin University, Tianjin 300072, China
Yong Jie Zhang: College of Management and Economics, Tianjin University, Tianjin 300072, China

International Journal of Information Technology & Decision Making (IJITDM), 2011, vol. 10, issue 03, 563-584

Abstract: Using the method of agent-based computational finance, this paper designs ten experiments to examine the impacts of the index futures market, typical investment strategies, and different trading mechanisms on the volatility of the Chinese stock market, taking into account the behavior of investors. We have the following results. First, the volatility of the stock market decreases with the index future market and cross-market arbitrageurs. Second, different investment strategies have different effects on stock market volatility. In many cases, both market-imitating and stop-loss strategies can increase stock market volatility. Third, the mechanism of price limits for the index futures market can help to stabilize the fluctuation of the stock market.

Keywords: Agent-based computational finance; index futures; investment strategy; cross-market volatility; risk formation mechanism; 22E46; 53C35; 57S20 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219622011004464

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