Modeling interaction of trading volume in financial dynamics

F. Ren, B. Zheng and P. Chen

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Abstract: A dynamic herding model with interactions of trading volumes is introduced. At time $t$, an agent trades with a probability, which depends on the ratio of the total trading volume at time $t-1$ to its own trading volume at its last trade. The price return is determined by the volume imbalance and number of trades. The model successfully reproduces the power-law distributions of the trading volume, number of trades and price return, and their relations. Moreover, the generated time series are long-range correlated. We demonstrate that the results are rather robust, and do not depend on the particular form of the trading probability.

Date: 2008-03, Revised 2009-11
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0803.0844

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