Skip to main content

Microstructure Dynamics and Agent-Based Financial Markets: Can Dinosaurs Return?

Kampouridis, Michael, Chen, Shu-Heng, Tsang, Edward (2012) Microstructure Dynamics and Agent-Based Financial Markets: Can Dinosaurs Return? Advances in Complex Systems, 15 (S02). p. 1250060. ISSN 1793-6802. (doi:10.1142/S0219525912500609) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1142/S0219525912500609

Abstract

This paper formalizes observations made under agent-based artificial stock market models into a concrete hypothesis, which is called the Dinosaur Hypothesis. This hypothesis states that the behavior of financial markets constantly changes and that the trading strategies in a market need to continuously co-evolve with it in order to remain effective. After formalizing the hypothesis, we suggest a testing methodology and run tests under 10 international financial markets. Our tests are based on a framework that we recently developed, which used Genetic Programming as a rule inference engine, and Self-Organizing Maps as a clustering machine for the above rules. However, an important assumption of that study was that maps among different periods were directly comparable with each other. In order to allow this to happen, we had to keep the same clusters throughout the different time periods of our experiments. Nevertheless, this assumption could be considered as strict or even unrealistic. In this paper, we relax this assumption. This makes our model more realistic. In addition, this allows us to investigate in depth the dynamics of market behavior and test for the plausibility of the Dinosaur Hypothesis. The results show that indeed markets' behavior constantly changes. As a consequence, strategies need to continuously co-evolve with the market; if they do not, they become obsolete or dinosaurs. Read More: http://www.worldscientific.com/doi/abs/10.1142/S0219525912500609

Item Type: Article
DOI/Identification number: 10.1142/S0219525912500609
Additional information: <29> This work introduces a dynamic agent-based financial model. This model creates a new category of financial models, which combines N-type with Santa Fe Institute-like models. Moreover, trading strategies are allowed to change across time. This is very significant, because until now agent-based financial models could not allow the above two types to co-exist, while also allowing dynamic trading strategies. The above has created a very realistic financial model, which led to important observations regarding the evolution of trading strategy types over time. This model is beneficial to both traders and theoretical economists.;
Uncontrolled keywords: Genetic programming; self-organizing feature map; market microstructure; market behavior dynamics; dinosaur hypothesis Read More: http://www.worldscientific.com/doi/abs/10.1142/S0219525912500609
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Divisions: Faculties > Sciences > School of Computing
Depositing User: Stewart Brownrigg
Date Deposited: 07 Mar 2014 00:05 UTC
Last Modified: 29 May 2019 12:21 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/40194 (The current URI for this page, for reference purposes)
  • Depositors only (login required):