Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222979
Authors: 
Schmitt, Noemi
Schwartz, Ivonne
Westerhoff, Frank H.
Year of Publication: 
2020
Series/Report no.: 
BERG Working Paper Series 160
Abstract: 
We propose a simple agent-based computational model in which speculators' trading behavior may cause bubbles and crashes, excess volatility, serially uncorrelated returns, fat-tailed return distributions and volatility clustering, thereby replicating five important stylized facts of stock markets. Since each speculator bets on his own (technical and fundamental) trading signals, stock prices are excessively volatile and oscillate erratically around their fundamental value. However, speculators' heterogeneity occasionally vanishes, e.g. due to panic-induced herding behavior, yielding extreme returns. Lasting regimes with high volatility originate from the fact that speculators extract stronger trading signals out of past stock price movements when stock prices fluctuate strongly. Simulations furthermore suggest that circuit breakers may be an effective tool to combat financial market turbulences.
Subjects: 
stock markets
stylized facts
agent-based computational models
technical and fundamental analysis
circuit breakers
econophysics
JEL: 
C63
D84
G15
ISBN: 
978-3-943153-81-1
Document Type: 
Working Paper

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