Speculative behavior and the dynamics of interacting stock markets

Noemi Schmitt and Frank Westerhoff

No 90, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: We develop a simple agent-based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets. Speculators' strategy/market selections are repeated at each time step and depend on predisposition effects, herding behavior and market circumstances. Simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets, including bubbles and crashes, fat-tailed return distributions, volatility clustering, persistent trading volume, coevolving stock prices and cross-correlated volatilities. Against this background, our model may be deemed to have been validated.

Keywords: stock markets; stylized facts; technical and fundamental analysis; agent-based modeling; bounded rationality; simulation analysis (search for similar items in EconPapers)
JEL-codes: C63 D84 G12 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cmp and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: Speculative behavior and the dynamics of interacting stock markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:90

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