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Heterogeneity, nonlinearity and endogenous market volatility
Li, Hongquan1; Wang, Shouyang2; Shang, Wei2
2011-12-01
Source PublicationJOURNAL OF SYSTEMS SCIENCE & COMPLEXITY
ISSN1009-6124
Volume24Issue:6Pages:1130-1142
AbstractThis paper aims to contribute to the literature on the explanatory power of behavior models with heterogeneous agents. The authors present a new nonlinear structural stock market model which is a nonlinear deterministic process buffeted by dynamic noise. An exogenous noise is introduced to the model with the assumption of IID normal innovations of the fundamental value in order to investigate how noisy dynamics interacts with deterministic process. The market is composed of two typical trader types: the rational fundamentalists and the boundedly rational traders governed by greed and fear. The interaction between noise and deterministic element determines the evolution process of the system as key parameters are changed. The authors find the model is able to generate time series that exhibit dynamical and statistical properties closely resembling those of the S&P500 index, such as volatility clustering, fat tails (leptokurtosis), autocorrelation in square and absolute return, larger amplitude, crashes and bubbles. The authors also investigate the nonlinear dependence structure in our data. The results indicate that the GARCH-type model cannot completely account for all nonlinearity in our simulated market, which is thus consistent with the results from real markets. It seems that the nonlinear structural model is more powerful to give a satisfied explanation to market behavior than the traditional stochastic approach.
KeywordComputational finance endogenous volatility heterogeneous agents noisy chaos nonlinearity stylized facts
DOI10.1007/s11424-011-9054-8
Language英语
Funding ProjectMEXT (Kyoto University) ; National Natural Science Foundation of China[71001036] ; National Natural Science Foundation of China[71171186] ; Chinese Academy of Sciences[KACX1-YW-0906] ; Hunan Provincial Education Department[10A082]
WOS Research AreaMathematics
WOS SubjectMathematics, Interdisciplinary Applications
WOS IDWOS:000297798800008
PublisherSPRINGER HEIDELBERG
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Document Type期刊论文
Identifierhttp://ir.amss.ac.cn/handle/2S8OKBNM/11476
Collection系统科学研究所
Corresponding AuthorLi, Hongquan
Affiliation1.Hunan Normal Univ, Sch Business, Changsha 410081, Hunan, Peoples R China
2.Chinese Acad Sci, Acad Math & Syst Sci, Beijing 100190, Peoples R China
Recommended Citation
GB/T 7714
Li, Hongquan,Wang, Shouyang,Shang, Wei. Heterogeneity, nonlinearity and endogenous market volatility[J]. JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY,2011,24(6):1130-1142.
APA Li, Hongquan,Wang, Shouyang,&Shang, Wei.(2011).Heterogeneity, nonlinearity and endogenous market volatility.JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY,24(6),1130-1142.
MLA Li, Hongquan,et al."Heterogeneity, nonlinearity and endogenous market volatility".JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY 24.6(2011):1130-1142.
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