Speculative behavior and the dynamics of interacting stock markets |
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Institution: | 1. Department of Finance, School of Management, Fudan University, China;2. Department of Finance, School of Management, Xiamen University, China |
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Abstract: | We develop a simple agent-based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets. Speculators׳ strategy/market selections are repeated at each time step and depend on predisposition effects, herding behavior and market circumstances. Simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets, including bubbles and crashes, fat-tailed return distributions, volatility clustering, persistent trading volume, coevolving stock prices and cross-correlated volatilities. Against this background, our model may be deemed to have been validated. |
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Keywords: | Stock markets Comovements Cross-correlations Technical and fundamental analysis Agent-based modeling Simulation analysis |
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