Statistical properties of absolute log-returns and a stochastic model of stock markets with heterogeneous agents

Taisei Kaizoji ()

Papers from arXiv.org

Abstract: This paper is intended as an investigation of the statistical properties of {\it absolute log-returns}, defined as the absolute value of the logarithmic price change, for the Nikkei 225 index in the 28-year period from January 4, 1975 to December 30, 2002. We divided the time series of the Nikkei 225 index into two periods, an inflationary period and a deflationary period. We have previously [18] found that the distribution of absolute log-returns can be approximated by the power-law distribution in the inflationary period, while the distribution of absolute log-returns is well described by the exponential distribution in the deflationary period.\par To further explore these empirical findings, we have introduced a model of stock markets which was proposed in [19,20]. In this model, the stock market is composed of two groups of traders: {\it the fundamentalists}, who believe that the asset price will return to the fundamental price, and {\it the interacting traders}, who can be noise traders. We show through numerical simulation of the model that when the number of interacting traders is greater than the number of fundamentalists, the power-law distribution of absolute log-returns is generated by the interacting traders' herd behavior, and, inversely, when the number of fundamentalists is greater than the number of interacting traders, the exponential distribution of absolute log-returns is generated.

Date: 2006-03
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in in T. Lux, S. Reitz, and E. Samanidou (eds.): Nonlinear Dynamics and Heterogeneous Intercting Agents: (Lecture Notes in Economics and Mathematical Systems 550), pp. 237-248, Springer-Verlag, Berlin- Heidelberg (2005)

Downloads: (external link)
http://arxiv.org/pdf/physics/0603139 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:physics/0603139

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().