Abstract
Herd behavior in Economics can be fruitfully represented by a generalization of the well-known Ehrenfest urn model to correlated clustering. The strategies of an agent in a stock market (planning to buy, to sell or to be inactive) are represented by three urns, and the accommodation of each agent in one of them is ruled by a random mechanism that may depend strongly on the behavior of the other agents. This mechanism is introduced in the “Genoa Artificial Stock Market” [14]. At each step, each agent chooses its strategy following the Ehrenfest-Brillouin model [10]. Given the old price, the demands of bulls and the supply of bears intersect, and generate the new price. Fat tails of price returns are obtained directly as a function of the herding parameter, without introducing any individual distinction among agents (like initial wealth, or risk-propensity). Time correlation is driven by a simple mechanism, and volatility clusters can be introduced as temporal variations of the herding parameter. The relationship between the active strategy excess (the difference “bulls minus bears”) and the price returns is studied.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Aoki M. (1996) New Approaches to Macroeconomic Modeling, Cambridge University Press
Aoki M. (1999) Open Models of Share Markets with Several Types of Participants, 4th Workshop on Economics with Heterogeneous Interacting Agents, Genoa, 5–6 June 1999
Aoki M. (2001) A New Model of Economic Fluctuations and Growth, 6th Workshop on Economics with Heterogeneous Interacting Agents, Maastricht, June 2001 (http://meritbbs.unimaas.nl/WEHIA)
Cont R., Bouchaud J. P. (2000) Herd Behavior and Aggregate Fluctuations in Financial Markets, Macroeconomic Dynamics, 4:170–196
Costantini D., Garibaldi U. (2000) A Purely Probabilistic Approach to the Dynamics of a Gas of Particles, Foundations of Physics, 30:81–99
Ehrenfest P. and Ehrenfest T.(1907) Uber Zwei Bekannte Einwande gegen das Boltzmannsche H Theorem, Phis.,Z 8:311–316
Gardini A., Cavaliere G., Costa M. (1998) A New Approach to Stock Price Forecasting, 9th (EC)2 Conference’Forecasting in Econometrics’, Stockholm, 18–19 December 1998
Garibaldi U. (1999) Ehrenfest’s Urn Model Generalized: a Model for Herd Behaviour in Economic Time Series, 4th Workshop on Economics with Heterogeneous Interacting Agents, Genoa, 5–6 June 1999 (http://ciclamino.dibe.unige.it/wehia/program.html)
Garibaldi U., Penco M.A. (2000) Ehrenfest’s Urn Model Generalized: an Exact Approach for Market Participation Models, Statistica Applicata, 12:249–272
Garibaldi U., Penco M. A., Viarengo P. (2001) An Exact Physical Model for Herd Behavior in Economics, 6th Workshop on Economics with Heterogeneous Interacting Agents, Maastricht, 5–7 June 2001, to appear in Cowan,R. and Jonard, N. Eds, Heterogeneous agents, interactions and economic performance, Lecture Notes in Economics and Mathematical Systems Series, Springer (http://meritbbs.unimaas.nl/WEHIA)
Kirman A. (1993) Ants, Rationality and Recruitment, The Quarterly Journal of Economics, 108:137–156
Marchesi M. et al. (2001) The Genoa Artificial Stock Market: Microstructure and Preliminary Simulations, 6th Workshop on Economics with Heterogeneous Interacting Agents, Maastricht, June 2001
Penrose O. (1970) Foundations of Statistical Mechanics, Pergamon Press, Oxford
Raberto M. et al. (2001) Agent-based Simulation of a Financial Market, Physica A 299:319–327
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2004 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Garibaldi, U., Raberto, M., Viarengo, P. (2004). Herd Behavior in Artificial Stock Markets. In: Gallegati, M., Kirman, A.P., Marsili, M. (eds) The Complex Dynamics of Economic Interaction. Lecture Notes in Economics and Mathematical Systems, vol 531. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-17045-4_13
Download citation
DOI: https://doi.org/10.1007/978-3-642-17045-4_13
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-40497-2
Online ISBN: 978-3-642-17045-4
eBook Packages: Springer Book Archive