An Artificial Stock Market with Interaction Network and Mimetic Agents

Agent-based artificial stock markets attracted much attention over the last years, and many models have been proposed. However, among them, few models take into account the social interactions and mimicking behaviour of traders, while the economic literature describes investors on financial markets as influenced by decisions of their peers and explains that this mimicking behaviour has a decisive impact on price dynamics and market stability. In this paper we propose a continuous double auction model of financial market, populated by heterogeneous traders who interact through a social network of influence. Traders use different investment strategies, namely: fundamentalists who make a decisions based on the fundamental value of assets; hybrids who are initially fundamentalists, but switch to a speculative strategy when they detect an uptrend in prices; noise traders who don’t have sufficient information to take rational decisions, and finally mimetic traders who imitate the decisions of their mentors on the interactions network. An experimental design is performed to show the feasibility and utility of the proposed model

A multi-factor model of heterogeneous traders in a dynamic stock market

This study develops a computational stock market model in which each trader\u27s buying and selling decisions are endogenously determined by multiple factors: namely, firm profitability, past stock price movement, and imitation of other traders. Each trader can switch from being a buyer to a seller, and vice versa, depending on market conditions. Simulation findings demonstrate that the model can generate excess volatility, a fat-fail property, and the ARCH effect in stock returns. The results also suggest the importance of trader memory length for determining the stability of stock prices in response to dividend shocks

Herding effects in order driven markets: The rise and fall of gurus

We introduce an order driver market model with heterogeneous traders that imitate each other on a dynamic network structure. The communication structure evolves endogenously via a fitness mechanism based on agents performance. We assess under which assumptions imitation, among otherway noise traders, can give rise to the emergence of gurus and their rise and fall in popularity over time. We study the wealth distribution of gurus, followers and non followers and show that traders have an incentive to imitate and to be imitated since herding turns out to be profitable

Log periodic analysis of critical crashes in the portuguese stock market

Mestrado em Ciências EmpresariaisO estudo de fenómenos críticos que se originaram nas ciências naturais e encontraram muitos campos de aplicação foi estendido nos últimos anos aos campos da economia de finanças, fornecendo aos investigadores novas abordagens para problemas conhecidos, nomeadamente aos que estão relacionados com a gestão de risco, a previsão, o estudo de bolhas financeiras e crashes, e muitos outros tipos de problemas que envolvem sistemas com criticalidade auto-organizada. A teoria de singularidades de tempo oscilatório auto-similares é apresentada, uma metodologia prática é exposta, juntamente com alguns resultados de análises semelhantes de diferentes mercados em todo o mundo, como uma maneira de obter de alguns exemplos da forma como a função "linear" log-periódica de potências funciona. Apresento alguns contextos onde o tempo de crise é apresentado aos mercados internacionais - como uma maneira de demonstração de antecedentes -, assim como apresento também três aplicações práticas do mercado de acções português (1997, 2008 e 2015). A sensibilidade dos resultados e do significado das oscilações log-periódicas são avaliadas. Concluo com algumas recomendações e futuras propostas de investigação.The study of critical phenomena that originated in the natural sciences and found many fields of applications has been extended in the last years to the financial economics? field, giving researchers new approaches to known problems, namely those related to risk management, forecasting, the study of bubbles and crashes, and many kind of problems involving complex systems with self-organized criticality. The theory of self-similar oscillatory time singularities is presented. A practical methodology is exposed along with some results from similar analysis from different markets around the world, as a way to get some examples of the way the ´Linear´ Log-Periodic Power Law formula works. Some context presenting the international markets at the time of crisis is given as a way of having some background, and three practical applications for the Portuguese stock market are made (1997, 2008 and 2015). The sensitivity of the results and the significance from the log-periodic oscillations is assessed. It concludes with some recommendations and future proposed research

Critical Market Crashes

This review is a partial synthesis of the book ``Why stock market crash'' (Princeton University Press, January 2003), which presents a general theory of financial crashes and of stock market instabilities that his co-workers and the author have developed over the past seven years. The study of the frequency distribution of drawdowns, or runs of successive losses shows that large financial crashes are ``outliers'': they form a class of their own as can be seen from their statistical signatures. If large financial crashes are ``outliers'', they are special and thus require a special explanation, a specific model, a theory of their own. In addition, their special properties may perhaps be used for their prediction. The main mechanisms leading to positive feedbacks, i.e., self-reinforcement, such as imitative behavior and herding between investors are reviewed with many references provided to the relevant literature outside the confine of Physics. Positive feedbacks provide the fuel for the development of speculative bubbles, preparing the instability for a major crash. We demonstrate several detailed mathematical models of speculative bubbles and crashes. The most important message is the discovery of robust and universal signatures of the approach to crashes. These precursory patterns have been documented for essentially all crashes on developed as well as emergent stock markets, on currency markets, on company stocks, and so on. The concept of an ``anti-bubble'' is also summarized, with two forward predictions on the Japanese stock market starting in 1999 and on the USA stock market still running. We conclude by presenting our view of the organization of financial markets.Comment: Latex 89 pages and 38 figures, in press in Physics Report

Herding effects in order driven markets: The rise and fall of gurus

We introduce an order driver market model with heterogeneous traders that imitate each other on a dynamic network structure. The communication structure evolves endogenously via a fitness mechanism based on agents performance. We assess under which assumptions imitation, among noise traders, can give rise to the emergence of gurus and their rise and fall in popularity over time. We study the wealth distribution of gurus, followers and non followers and show that traders have an incentive to imitate and a desire to be imitated since herding turns out to be profitable. The model is then used to study the effect that different competitive strategies (i.e. chartist & fundamentalist) have on agents performance. Our findings show that positive intelligence agents cannot invade a market populated by noise traders when herding is high

Evolutionary modeling in economics : recent history and immediate prospects

Abstract not availablemathematical economics and econometrics ;