A Dynamic Analysis of the Microstructure of Moving Average Rules in a Double Auction Market

Carl Chiarella, Xuezhong (Tony) He () and Paolo Pellizzari

No 251, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: Inspired by the theoretically oriented dynamic analysis of moving average rules in Chiarella, He and Hommes (CHH) (2006a) model, this paper conducts a dynamic analysis of a microstructure model of continuous double auctions in which the probability of heterogeneous agents to trade is determined by the rules of either fundamentalists mean-reverting to the fundamental or chartists choosing moving average rules based their relative performance. With such a realistic market microstructure, the model is able not only to obtain the results of the CHH model but also to characterise most of the stylized facts including the power-law behaviour of volatility. The results seem to suggest that a comprehensive explanation of several statistical properties of returns is possible in a framework where both behavioral traits and realistic microstructure have a role.

Keywords: microstructure model; continuous double auctions; heterogeneous agents; stylized facts (search for similar items in EconPapers)
JEL-codes: D53 G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-07-01
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (1)

Published as: Chiarella, C., He, X. and Pellizzari, P., 2012, "A Dynamic Analysis of the Microstructure of Moving Average Rules in a Double Auction Market", Macroeconomic Dynamics, 16(4), 556-575.

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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp251.pdf (application/pdf)

Related works:
Journal Article: A DYNAMIC ANALYSIS OF THE MICROSTRUCTURE OF MOVING AVERAGE RULES IN A DOUBLE AUCTION MARKET (2012)
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