Abstract
This chapter discusses various financial microscopic simulation (MS) models that can be used to examine investor behavior in the market. Stigler's model appears to be the first MS of market dynamics. Although this is not a full-blown MS market model, in the sense that there is no explicit modeling of investors and their trading strategies, Stigler's study was one of the first steps in the direction of MS. The context in which Stigler's simulations were produced was the debate on the criteria for an efficient stock market and on the trading mechanisms necessary to ensure efficiency. Harry Markowitz is very well known for being one of the founders of modern portfolio theory. It is less well known, however, that he is also one of the pioneers in employing MS in financial research. The rebalancers act to keep a portfolio structure with half of their wealth in cash and half in stocks. If the stock price rises, then the stocks weight in the portfolio will increase and the rebalancers will sell shares until the shares again constitute 50% of the portfolio.
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