Market entry waves and volatility outbursts in stock markets

Arbeitspapier

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.

Object Details

• ISBN: 978-3-943153-48-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BERG Working Paper Series ; No. 128

Classification and Topics

• Classification: Wirtschaft ; Computational Techniques; Simulation Modeling ; Expectations; Speculations ; International Financial Markets
• Subject: stock markets ; heterogeneous speculators ; exponential replicator dynamics ; herding behavior ; stylized facts

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blaurock, Ivonne ; Schmitt, Noemi ; Westerhoff, Frank
• Event: Veröffentlichung
• (who): Bamberg University, Bamberg Economic Research Group (BERG)
• (where): Bamberg
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/167674
• Last update: 10.03.2025, 11:44 AM CET