Breeds of risk-adjusted fundamentalist strategies in an order- driven market
Marco LiCalzi () and
Paolo Pellizzari ()
Computational Economics from University Library of Munich, Germany
This paper studies an order-driven stock market where agents have heterogeneous estimates of the fundamental value of the risky asset. The agents are budget-constrained and follow a value-based trading strategy which buys or sells depending on whether the price of the asset is below or above its risk-adjusted fundamental value. This environment generates returns that are remarkably leptokurtic and fat-tailed. By extending the study over a grid of different parameters for the fundamentalist trading strategy, we exhibit the existence of monotone relationships between the bid-ask spread demanded by the agents and several statistics of the returns. We conjecture that this effect, coupled with positive dependence of the risk premium on the volatility, generates positive feedbacks that might explain volatility bursts.
Keywords: price dynamics; statistical properties of returns; market microstructure; agent-based simulations (search for similar items in EconPapers)
JEL-codes: C8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-fmk
Note: Type of Document - pdf; pages: 17
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Journal Article: Breeds of risk-adjusted fundamentalist strategies in an order-driven market (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpco:0506001
Access Statistics for this paper
More papers in Computational Economics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().