Naslov
Linking Agent-Based Models and Stochastic Models of Financial Markets

Autori
Feng, Ling ; Li, Baowen ; Podobnik, Boris ; Preis, Tobias ; Stanley, Eugene H.

Izvornik
Proceedings of the National Academy of Sciences of the United States of America (0027-8424) 109 (2012), 22; 8388-8393

Vrsta, podvrsta i kategorija rada
Radovi u časopisima, članak, znanstveni

Ključne riječi
finance; complex systems; power law; scaling laws; agent-based modeling

Sažetak
It is well-known that financial asset returns exhibit fat-tailed distributions and long-term memory. These empirical features are the main objectives of modeling efforts using (i) stochastic processes to quantitatively reproduce these features and (ii) agent-based simulations to understand the underlying microscopic interactions. After reviewing selected empirical and theoretical evidence documenting the behavior of traders, we construct an agent-based model to quantitatively demonstrate that “fat” tails in return distributions arise when traders share similar technical trading strategies and decisions. Extending our behavioral model to a stochastic model, we derive and explain a set of quantitative scaling relations of long-term memory from the empirical behavior of individual market participants. Our analysis provides a behavioral interpretation of the long-term memory of absolute and squared price returns: They are directly linked to the way investors evaluate their investments by applying technical strategies at different investment horizons, and this quantitative relationship is in agreement with empirical findings. Our approach provides a possible behavioral explanation for stochastic models for financial systems in general and provides a method to parameterize such models from market data rather than from statistical fitting.

Izvorni jezik
Engleski

Znanstvena područja
Fizika, Ekonomija

POVEZANOST RADA