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Shanghai, China An Behavioral Model of Various Stock Market Dynamic Regimes Yu Tongkui Department of Systems Science, School of Management, BNU

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Shanghai, China An Behavioral Model of Various Stock Market Dynamic Regimes Yu Tongkui Department of Systems Science, School of Management, BNU

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Dynamic Regimes Source: www.sohu.com

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Dynamic Regimes Source: www.sohu.com

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

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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)

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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

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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 by both analytical and multi-agent simulation approach.

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Outline:

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

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

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Model Switch probability between optimistic and pessimistic chartists : market sentiment index : mimetic propensity : price-chasing propensity

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Model Switch probability between fundamentalists and chartists : strategy-switching propensity

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Model Price formation ED: Excess demand

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Multi-agent Stock Market Model Procedure:

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Outline:

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

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Outline:

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Dynamic regime (I) Fundamental equilibrium

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Multi-agent Simulation System

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Typical Simulation results with Fundamental equilibrium parameters

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Dynamic regime (II) Symmetric non-fundamental equilibrium

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Typical Simulation results with Non-fundamental equilibrium parameters

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Dynamic regime (III) - Periodicity

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Dynamic regime (IV) - Chaos

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Typical Multi-agent Simulations with analytical results

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Traders propensities to dynamic regimes Bifurcation diagram

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Traders propensities to dynamic regimes phase diagram

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(Strategy-switching propensity)

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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.

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Further research A model with endogenous agent number N (Different degrees of attraction of additional traders may play an important role in real market). Fast parameters (price) and slow parameters (traders propensities).

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Prediction: if >4000 then >5000

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Thanks for patience Suggestions welcome!