Direct comparison of agent-based models of herding in financial markets

Sylvain Barde and Ofce Observatoire Français Des Conjonctures Économiques
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Ofce Observatoire Français Des Conjonctures Économiques: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: The present paper tests a new model comparison methodology by comparing multiple calibrations of three agent-based models of financial markets on the daily returns of 24 stock market indices and exchange rate series. The models chosen for this empirical application are the herding model of Gilli and Winker (2003), its asymmetric version by Alfarano et al. (2005) and the more recent model by Franke and Westerhoff (2011), which all share a common lineage to the herding model introduced by Kirman (1993). In addition, standard ARCH processes are included for each financial series to provide a benchmark for the explanatory power of the models. The methodology provides a consistent and statistically significant ranking of the three models. More importantly, it also reveals that the best performing model, Franke and Westerhoff, is generally not distinguishable from an ARCH-type process, suggesting their explanatory power on the data is similar.

Keywords: Model selection; Agent-based models; Herding behaviour (search for similar items in EconPapers)
Date: 2016-12
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03604749
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Citations: View citations in EconPapers (5)

Published in Journal of Economic Dynamics and Control, 2016, 73 (.), pp.329-353. ⟨10.1016/j.jedc.2016.10.005⟩

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Journal Article: Direct comparison of agent-based models of herding in financial markets (2016)
Working Paper: Direct comparison of agent-based models of herding in financial markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03604749

DOI: 10.1016/j.jedc.2016.10.005

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