Market entry waves and volatility outbursts in stock markets

Ivonne Blaurock, Noemi Schmitt and Frank Westerhoff

No 128, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We develop a simple agent-based financial market model in which speculators' market entry decisions are subject to herding behavior and market risk. Moreover, speculators' orders depend on price trends, market misalignments and fundamental news. Using a mix of analytical and numerical tools, we show that a herding-induced market entry wave may amplify excess demand, triggering lasting volatility outbursts. Eventually, however, higher stock market risk reduces stock market participation and volatility decreases again. Simulations furthermore reveal that our approach is also able to produce bubbles and crashes, excess volatility, fat-tailed return distributions and serially uncorrelated price changes.

Keywords: stock markets; heterogeneous speculators; exponential replicator dynamics; herding behavior; stylized facts (search for similar items in EconPapers)
JEL-codes: C63 D84 G15 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cmp, nep-fmk, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/167674/1/895540649.pdf (application/pdf)

Related works:
Journal Article: Market entry waves and volatility outbursts in stock markets (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:128

Access Statistics for this paper

More papers in BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().