TY - JOUR
T1 - A dynamic analysis of the microstructure of moving average rules in a double auction market
AU - Chiarella, Carl
AU - He, Xue Zhong
AU - Pellizzari, Paolo
N1 - Funding Information:
This paper was written while Paolo Pellizzari was visiting the School of Finance and Economics at the University of Technology, Sydney (UTS). The financial support of the Paul Woolley Centre for Market Dysfunctionality and the Quantitative Finance Research Centre at UTS are gratefully acknowledged together with the Italian PRIN 2007 grant 2007TKLTSR, “Computational markets design and agent-based models of trading behavior.” Chiarella and He acknowledge the ARC Discovery Grant DP0773776 in its support of this project. We thank the editor and two anonymous referees for their comments and suggestions. All remaining errors are ours. Address correspondence to: Paolo Pellizzari, Dipartimento di Matematica Applicata, S. Giobbe—Cannaregio 873, 30121 Venice, Italy; e-mail: paolop@unive.it.
PY - 2012/9
Y1 - 2012/9
N2 - Inspired by the theoretically oriented dynamic analysis of moving average rules in the model of Chiarella, He, and Hommes (CHH) [Journal of Economic Dynamics and Control 30 (2006), 1729-1753], this paper conducts a dynamic analysis of a more realistic microstructure model of continuous double auctions in which the probability of heterogeneous agents trading is determined by the rules of either fundamentalists mean-reverting to the fundamental or chartists choosing moving average rules based on their relative performance. With such a realistic market microstructure, the model is able not only to obtain the results of the CHH model but also to characterize most of the stylized facts including volatility clustering, insignificant autocorrelations (ACs) of returns, and significant slowly decaying ACs of the absolute returns. The results seem to suggest that a comprehensive explanation of several statistical properties of returns is possible in a framework where both behavioral traits and realistic microstructure have a role.
AB - Inspired by the theoretically oriented dynamic analysis of moving average rules in the model of Chiarella, He, and Hommes (CHH) [Journal of Economic Dynamics and Control 30 (2006), 1729-1753], this paper conducts a dynamic analysis of a more realistic microstructure model of continuous double auctions in which the probability of heterogeneous agents trading is determined by the rules of either fundamentalists mean-reverting to the fundamental or chartists choosing moving average rules based on their relative performance. With such a realistic market microstructure, the model is able not only to obtain the results of the CHH model but also to characterize most of the stylized facts including volatility clustering, insignificant autocorrelations (ACs) of returns, and significant slowly decaying ACs of the absolute returns. The results seem to suggest that a comprehensive explanation of several statistical properties of returns is possible in a framework where both behavioral traits and realistic microstructure have a role.
KW - Continuous Double Auctions
KW - Heterogeneous Agents
KW - Microstructure Model
KW - Stylized Facts
UR - http://www.scopus.com/inward/record.url?scp=84865999163&partnerID=8YFLogxK
U2 - 10.1017/S136510051000074X
DO - 10.1017/S136510051000074X
M3 - Article
AN - SCOPUS:84865999163
SN - 1365-1005
VL - 16
SP - 556
EP - 575
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
IS - 4
ER -