Dynamic Regimes of a Multi-agent Stock Market Model

Dynamic Regimes of a Multi-agent Stock Market Model Tongkui (Kevin) Yu, Honggang Li Department of Systems Science, School of Management, BNU Complex’ 2009 Shanghai, China

Dynamic Regime Source: www.sohu.com

Motivation • Aim: (1)to find an underlying mechanism producing various dynamic regimes; (2) to investigate the factors (traders’ propensities) determining the market in which regime. Similar trading rules Similar traders Various regimes

Related works • Many models have been built to replicate different dynamic regimes: • Chiarella, C. (1992,2001,2004) • Lux, T. (1995,1998,1999) • Brock, W. A., Hommes, C. H. (1997, 2001) • ……

Bottom-up modeling • Consider the behavioral pattern of traders (agents) and model it as the switch probability among different groups • Derive a dynamical system to approximate the market evolution • So, the dynamical system has parameters for traders’ propensities

Our work • Follows Lux’s bottom up approach. • Builds a multi-agent model with four kinds of dynamic regimes (fundamental equilibrium, non-fundamental equilibrium, periodicity and chaos). • Concentrates on analyzing the effect of traders’ propensities (mimetic propensity, price-chasing propensity and strategy-switching propensity) on market dynamic regimes.

3 Outline: 2 1

Multi-agent Stock Market Model • Market components (chartists) (optimistic chartists) (pessimistic chartists) (fundamentalists)

Multi-agent Stock Market Model • Traders behavior • Modeled as the switch probability among different groups

Model • Switch probability between n+ and n− • : market sentiment index • : mimetic propensity • : price-chasing propensity

Model • Switch probability between nc and nf • : strategy-switching propensity

Model • Price formation

Procedure: Multi-agent Stock Market Model

Outline: 2

Stock Market Dynamical System Where: market sentiment index market rationality index p : market price

3 Outline:

Fundamental equilibrium Dynamic regimes

Dynamic regimes • Symmetric non-fundamental equilibrium

Dynamic regimes - Periodicity

Dynamic regimes - Chaos

Dynamic regimes – an overview with bifurcation diagram

Dynamic regimes – an overview with phase diagram

Conclusion • Present an underlying mechanism that gives reasonable explanations to four kinds of market regimes. • Traders' behavioral propensities play an important role in determining market dynamic regimes.

Further research • Exact parameter ranges within which different solutions occur. • Parameter calibration to make the model precise enough to describe the dynamics of a real market • Slow parameters and fast parameters

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Dynamic Regimes of a Multi-agent Stock Market Model

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