Advertisement

A Hybrid Multi-agent Model for Financial Markets

  • Stephen Chen
  • Jonathan Tien
  • Brenda Spotton Visano
Part of the Lecture Notes in Computer Science book series (LNCS, volume 5027)

Abstract

Economic models attempt to represent the aggregate behaviour of individual actors engaged in an economic activity. To ensure tractability in the subsequent mathematics, restrictive assumptions on the modelled phenomena are often required. Economic features that cannot be modelled mathematically can be difficult to verify experimentally. The hybrid multi-agent model developed here starts as an exact representation of a mathematics-based, multi-agent economics model, and then a more qualitative feature is added. Unlike purely qualitative studies, the effects of this additional feature can then be observed within an environment that has been experimentally demonstrated to be quantitatively accurate. The hybrid model is thus able to integrate both rigid mathematical assumptions and intuitive qualitative features, and the presented experimental data provides new insight into the potential role of social investors during market manias and bubbles.

Keywords

Multi-Agent Model Financial Market Modelling Social Investors 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Chen, S., Spotton Visano, B., Kong, Y.: Introducing Social Investors into Multi-Agent Mod-els of Financial Markets. In: Ali, M., Dapoigny, R. (eds.) IEA/AIE 2006. LNCS (LNAI), vol. 4031, pp. 44–53. Springer, Heidelberg (2006)CrossRefGoogle Scholar
  2. 2.
    Cont, R., Bouchard, J.-P.: Herd Behavior and Aggregate Fluctuations in Financial Markets. Macroeconomic Dynamics 4, 170–196 (2000)MATHCrossRefGoogle Scholar
  3. 3.
    Eguiluz, V.M., Zimmermann, M.G.: Transmission of Information and Herd Behavior: An Application to Financial Markets. Physical Review Letters 85, 5659–5662 (2000)CrossRefGoogle Scholar
  4. 4.
    Fama, E.F.: The Behavior of Stock Market Prices. Journal of Business 38, 34–105 (1965)CrossRefGoogle Scholar
  5. 5.
    Fama, E.F.: Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance 25, 383–416 (1970)CrossRefGoogle Scholar
  6. 6.
    Fama, E.F.: Foundations of Finance. Basic Books, New York (1976)Google Scholar
  7. 7.
    Fama, E.F.: Efficient Markets: II. Journal of Finance 46(5), 1575–1617 (1991)CrossRefGoogle Scholar
  8. 8.
    Froot, K.A., Scharfstein, D.S., Stein, J.C.: Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation. Journal of Finance 47, 1461–1484 (1992)CrossRefGoogle Scholar
  9. 9.
    Keynes, J.M.: The General Theory of Employment, Interest and Money. Reprinted Prome-theus Books (1936, 1997)Google Scholar
  10. 10.
    De Long, J.B., Schleifer, A., Summers, L.H., Waldman, R.J.: Noise Trader Risk in Financial Markets. Journal of Political Economy 98, 703–738 (1990)CrossRefGoogle Scholar
  11. 11.
    De Long, J.B., Schleifer, A., Summers, L.H., Waldman, R.J.: Positive Feedback Investment Strategies and Destabilizing Rational Speculation. Journal of Finance 45(2), 379–395 (1990)CrossRefGoogle Scholar
  12. 12.
    Lux, T.: The socio-economic dynamics of speculative markets: Interacting agents, chaos, and the fat tails of return distribution. Journal of Economic Behavior and Organization 33, 143–165 (1998)CrossRefGoogle Scholar
  13. 13.
    Lux, T., Marchesi, M.: Scaling and criticality in a stochastic multi-agent model of a financial market. Nature 397, 498–500 (1999)CrossRefGoogle Scholar
  14. 14.
    Lux, T., Marchesi, M.: Volatility Clustering in Financial Markets: A Microsimulation of Interacting Agents. International Journal of Theoretical and Applied Finance 3(4), 675–702 (2000)MATHCrossRefMathSciNetGoogle Scholar
  15. 15.
    Lynch, A.: Thought Contagions in the Stock Market. Journal of Psychology and Financial Markets 1, 10–23 (2000)Google Scholar
  16. 16.
    Spotton Visano, B.: Financial Crises: Socio-economic causes and institutional context. Routledge, London (2006)Google Scholar
  17. 17.
    Williams, J.B.: The Theory of Investment Value. Reprinted Augustus M. Kelley, New York (1938, 1965)Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2008

Authors and Affiliations

  • Stephen Chen
    • 1
  • Jonathan Tien
    • 2
  • Brenda Spotton Visano
    • 3
  1. 1.School of Information TechnologyYork UniversityToronto 
  2. 2.Engineering PhysicsMcMaster UniversityHamilton
  3. 3.School of Public Policy and Administration, Economics, Atkinson FacultyYork UniversityToronto

Personalised recommendations