Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167674
Authors: 
Blaurock, Ivonne
Schmitt, Noemi
Westerhoff, Frank
Year of Publication: 
2017
Series/Report no.: 
BERG Working Paper Series 128
Abstract: 
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.
Subjects: 
stock markets
heterogeneous speculators
exponential replicator dynamics
herding behavior
stylized facts
JEL: 
C63
D84
G15
ISBN: 
978-3-943153-48-4
Document Type: 
Working Paper

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