Heterogeneous information-based artificial stock market

Abstract

In this paper, an information-based artificial stock market is considered. The market is populated by heterogeneous agents that are seen as nodes of a sparsely connected graph. Agents trade a risky asset in exchange for cash. Besides the amount of cash and assets owned, each agent is characterized by a sentiment. Moreover, agents share their sentiments by means of interactions that are identified by the graph. Interactions are unidirectional and are supplied with heterogeneous weights. The agent's trading decision is based on sentiment and, consequently, the stock price process depends on the propagation of information among the interacting agents, on budget constraints and on market feedback. A central market maker (clearing house mechanism) determines the price process at the intersection of the demand and supply curves. Both closed- and open-market conditions are considered. The results point out the validity of the proposed model of information exchange among agents and are helpful for understanding the role of information in real markets. Under closed market conditions, the interaction among agents' sentiments yields a price process that reproduces the main stylized facts of real markets, e.g. the fat tails of the returns distributions and the clustering of volatility. Within open-market conditions, i.e. with an external cash inflow that results in asset price inflation, also the unitary root stylized fact is reproduced by the artificial stock market. Finally, the effects of model parameters on the properties of the artificial stock market are also addressed.