Cowboying Stock Market Herds with Robot Traders
Jaqueson Galimberti (),
Nicolas Suhadolnik () and
Sergio Da Silva ()
MPRA Paper from University Library of Munich, Germany
One explanation for large stock market fluctuations is its tendency to herd behavior. We put forward an agent-based model where instabilities are the result of liquidity imbalances amplified by local interactions through imitation, and calibrate the model to match some key statistics of actual daily returns.We show that an “aggregate market-maker” type of liquidity injection is not successful in stabilizing prices due to the complex nature of the stock market. To offset liquidity shortages, we propose the use of locally triggered contrarian rules, and show that these mechanisms are effective in preventing extreme returns in our artificial stock market.
Keywords: Herding; Robot trading; Financial regulation; Agent-based model (search for similar items in EconPapers)
JEL-codes: C63 G02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-fmk, nep-hme and nep-ore
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Journal Article: Cowboying Stock Market Herds with Robot Traders (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71758
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