Resource title

Simulation and validation of an integrated markets model

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Resource description

The behavior of boundedly rational agents in two interacting markets is investigated. A discrete-time model of coupled financial and consumer markets is described. The integrated model consists of heterogenous consumers, financial traders, and production firms. The production firms operate in the consumer market, and offer their shares to be traded on the financial market. The model is validated by comparing its output to known empirical properties of real markets. In order to better explore the influence of model parameters on behavior, a novel Markov chain Monte Carlo method is introduced. This method allows for the efficient exploration of large parameter spaces, in order to find which parameter regimes lead to reproduction of empirical phenomena. It is shown that the integrated markets model can reproduce a number of empirical "stylized facts", including learning-by-doing effects, fundamental price effects, low autocorrelations, volatility clustering, high kurtosis, and volatility-volume correlations. (author's abstract) ; Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

Resource author

Brian Sallans, Alexander Pfister, Alexandros Karatzoglou, Georg Dorffner

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Resource language

en

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application/pdf

Resource resource URL

http://epub.wu.ac.at/1454/1/document.pdf

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Adapt according to the license agreement. Always reference the original source and author.