Herding behavior and volatility clustering in financial markets

Noemi Schmitt and Frank Westerhoff

No 107, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We propose a simple agent-based financial market model in which speculators follow a linear mix of technical and fundamental trading rules to determine their orders. Volatility clustering arises in our model due to speculators' herding behavior. In case of heightened uncertainty, speculators observe other speculators' actions more closely. Since speculators' trading behavior then becomes less heterogeneous, the market maker faces a less balanced excess demand and consequently adjusts prices more strongly. Estimating our model using the method of simulated moments reveals that it is able to explain a number of stylized facts of financial markets quite well. Keywords: Agent-based financial market models, stylized facts of financial markets, technical and fundamental analysis, heterogeneity, herding behavior, method of simulated moments.

JEL-codes: C63 D84 G15 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cmp, nep-fmk, nep-hme, nep-mst and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Herding behaviour and volatility clustering in financial markets (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:107

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