Price drops, fluctuations, and correlation in a multi-agent model of stock markets

Abstract

In this paper, we compare market price fluctuations with the response to fundamental price drops within the Lux–Marchesi model which is able to reproduce the most important stylized facts of real market data. Major differences can be observed between the decay of spontaneous fluctuations and changes due to external perturbations reflecting the absence of detailed balance, i.e., of the validity of the fluctuation–dissipation theorem. We found that fundamental price drops are followed by an overshoot with a rather robust characteristic time.