Reaction to Extreme Events in a Minimal Agent Based Model
We consider the issue of the overreaction of financial markets to a sudden price change. In particular, we focus on the price and the population dynamics which follows a large fluctuation. In order to investigate these aspects from different perspectives we discuss the known results for empirical data, the Lux-Marchesi model and a minimal agent based model which we have recently proposed. We show that, in this framework, the presence of a overreaction is deeply linked to the population dynamics. In particular, the presence of a destabilizing strategy in the market is a necessary condition to have an overshoot with respect to the exogenously induced price fluctuation. Finally, we analyze how the memory of the agents can quantitatively affect this behavior.
KeywordsAgent Base Model Price Dynamic Price Movement Minimal Agent Trivial Connection
The authors thank János Kertész for the interesting discussions. We acknowledge support from the projects FET Open Project FOC nr. 255987 and the PNR national project CRISIS-Lab.
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