AVALANCHE DYNAMICS AND TRADING FRICTION EFFECTS ON STOCK MARKET RETURNS

Giulia Iori

International Journal of Modern Physics C (IJMPC), 1999, vol. 10, issue 06, 1149-1162

Abstract: We propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns. A generalized version of the Random Field Ising Model (RFIM) is introduced to describe trading behavior. Imitation effects, which induce agents to trade, can generate avalanches in trading volume and large gaps in demand and supply. A trade friction is introduced which, by responding to price movements, creates a feedback mechanism on future trading and generates volatility clustering.

Keywords: Stock Market models; Volatility clustering; Complex systems (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (25)

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DOI: 10.1142/S0129183199000930

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