On financial markets trading

Starting from the observation of the real trading activity, we propose a model of a stockmarket simulating all the typical phases taking place in a stock exchange. We show that there is no need of several classes of agents once one has introduced realistic constraints in order to confine money, time...

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Bibliographic Details
Published in:Physica A 2001-01, Vol.289 (3), p.526-542
Main Authors: Matassini, Lorenzo, Franci, Fabio
Format: Article
Language:English
Subjects:
Artificial financial market
Coupling
Econophysics
Herding behavior
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Summary:Starting from the observation of the real trading activity, we propose a model of a stockmarket simulating all the typical phases taking place in a stock exchange. We show that there is no need of several classes of agents once one has introduced realistic constraints in order to confine money, time, gain and loss within an appropriate range. The main ingredients are local and global coupling, randomness, Zipf distribution of resources and price formation when inserting an order. The simulation starts with the initial public offer and comprises the broadcasting of news/advertisements and the building of the book, where all the selling and buying orders are stored. The model is able to reproduce fat tails and clustered volatility, the two most significant characteristics of a real stockmarket, being driven by very intuitive parameters.
ISSN:0378-4371
1873-2119
DOI:10.1016/S0378-4371(00)00548-3