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Reaction to Extreme Events in a Minimal Agent Based Model

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Abstract

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.

Keywords

  • Agent Base Model
  • Price Dynamic
  • Price Movement
  • Minimal Agent
  • Trivial Connection

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Acknowledgements

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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Correspondence to Andrea Zaccaria .

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Zaccaria, A., Cristelli, M., Pietronero, L. (2013). Reaction to Extreme Events in a Minimal Agent Based Model. In: Abergel, F., Chakrabarti, B., Chakraborti, A., Ghosh, A. (eds) Econophysics of Systemic Risk and Network Dynamics. New Economic Windows. Springer, Milano. https://doi.org/10.1007/978-88-470-2553-0_9

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