Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144607
Authors: 
Schmitt, Noemi
Westerhoff, Frank
Year of Publication: 
2016
Series/Report no.: 
BERG Working Paper Series 111
Abstract: 
We propose a novel agent-based financial market framework in which speculators usually follow their own individual technical and fundamental trading rules to determine their orders. However, there are also sunspot-initiated periods in which their trading behavior is correlated. We are able to convert our (very) simple large-scale agent-based model into a simple small-scale agent-based model and show that our framework is able to produce bubbles and crashes, excess volatility, fattailed return distributions, serially uncorrelated returns and volatility clustering. While lasting volatility outbursts occur if the mass of speculators switches to technical analysis, extreme price changes emerge if sunspots coordinate temporarily the behavior of speculators.
Subjects: 
financial markets
stylized facts
agent-based models
technical and fundamental analysis
heterogeneity and coordination
sunspots and extreme events
JEL: 
C63
D84
G15
ISBN: 
978-3-943153-30-9
Document Type: 
Working Paper

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