Stock market information flow: Explanations from market status and information-related behavior

Abstract

Information flow between stocks are universal facts in worldwide stock markets and well documented in numerous studies. To understand the formation of information flow in stock market, we built an order driven artificial stock market where heterogeneous agents construct portfolio by maximizing expected utility and based on information they acquired. Simulations are performed under different market status and information-related trading behaviors of investors with limited information process capacity. Results showed that market noise or information quality alone could not determine the amount of information flow in stock market, that information process capacity and learning behavior of traders play vital intermediate roles. In addition, information flow is stabilized in the presence of a certain proportion of insider trading.