Herd behaviour experimental testing in laboratory artificial stock market settings. Behavioural foundations of stylised facts of financial returns

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@Article{Manahov:2013:PASMA,

• author = "Viktor Manahov and Robert Hudson",
• title = "Herd behaviour experimental testing in laboratory artificial stock market settings. Behavioural foundations of stylised facts of financial returns",
• journal = "Physica A: Statistical Mechanics and its Applications",
• year = "2013",
• volume = "392",
• number = "19",
• pages = "4351--4372",
• keywords = "genetic algorithms, genetic programming, STGP, Agent-based modelling, Artificial stock market, Herd behaviour stylised facts, Efficient market hypothesis",
• ISSN = "0378-4371",
• DOI = "doi:10.1016/j.physa.2013.05.029",
• URL = "http://www.sciencedirect.com/science/article/pii/S0378437113004524",
• abstract = "Many scholars express concerns that herding behaviour causes excess volatility, destabilises financial markets, and increases the likelihood of systemic risk. We use a special form of the Strongly Typed Genetic Programming (STGP) technique to evolve a stock market divided into two groups-a small subset of artificial agents called Best Agents and a main cohort of agents named All Agents. The Best Agents perform best in term of the trailing return of a wealth moving average. We then investigate whether herding behaviour can arise when agents trade Dow Jones, General Electric, and IBM stocks in four different artificial stock markets. This paper uses real historical quotes of the three financial instruments to analyse the behavioural foundations of stylised facts such as leptokurtosis, non-IIDness, and volatility clustering. We found evidence of more herding in a group of stocks than in individual stocks, but the magnitude of herding does not contribute to the mispricing of assets in the long run. Our findings suggest that the price formation process caused by the collective behaviour of the entire market exhibit less herding and is more efficient than the segmented market populated by a small subset of agents. Hence, greater genetic diversity leads to greater consistency with fundamental values and market efficiency.",

}

Genetic Programming entries for Viktor Manahov Robert Hudson

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