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Direct comparison of agent-based models of herding in financial markets

Barde, Sylvain (2016) Direct comparison of agent-based models of herding in financial markets. Journal of Economic Dynamics and Control, 73 . pp. 329-353. ISSN 0165-1889. (doi:10.1016/j.jedc.2016.10.005) (KAR id:58181)


The present paper tests a new model comparison methodology by comparing multiple calibrations of three agent-based models of financial markets on the daily returns of 24 stock market indices and exchange rate series. The models chosen for this empirical application are the herding model of Gilli & Winker (2003), its asymmetric version by Alfarano, Lux & Wagner (2005) and the more recent model by Franke & Westerhoff (2011), which all share a common lineage to the herding model introduced by Kirman (1993). In addition, standard ARCH processes are included for each financial series to provide a benchmark for the explanatory power of the models. The methodology provides a consistent and statistically significant ranking of the three models. More importantly, it also reveals that the best performing model, Franke & Westerhoff, is generally not distinguishable from an ARCH-type process, suggesting their explanatory power on the data is similar.

Item Type: Article
DOI/Identification number: 10.1016/j.jedc.2016.10.005
Uncontrolled keywords: Model selection, Agent-based models, herding behaviour
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Sylvain Barde
Date Deposited: 28 Oct 2016 14:12 UTC
Last Modified: 04 Mar 2024 17:10 UTC
Resource URI: (The current URI for this page, for reference purposes)

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