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

Date
2014-10-19
Authors
Pyo, Dong-Jin
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Economics
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Abstract

This study develops a computational stock market model in which each trader's 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.

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heterogeneous traders, asset pricing, social network, agent-based stock market model
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