Herd behaviour experimental testing in laboratory artificial stock market settings. Behavioural foundations of stylised facts of financial returns

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@Article{Manahov:2013:PASMA,
  author =       "Viktor Manahov and Robert Hudson",
  title =        "Herd behaviour experimental testing in laboratory
                 artificial stock market settings. Behavioural
                 foundations of stylised facts of financial returns",
  journal =      "Physica A: Statistical Mechanics and its
                 Applications",
  year =         "2013",
  volume =       "392",
  number =       "19",
  pages =        "4351--4372",
  keywords =     "genetic algorithms, genetic programming, STGP,
                 Agent-based modelling, Artificial stock market, Herd
                 behaviour stylised facts, Efficient market hypothesis",
  ISSN =         "0378-4371",
  DOI =          "doi:10.1016/j.physa.2013.05.029",
  URL =          "http://www.sciencedirect.com/science/article/pii/S0378437113004524",
  abstract =     "Many scholars express concerns that herding behaviour
                 causes excess volatility, destabilises financial
                 markets, and increases the likelihood of systemic risk.
                 We use a special form of the Strongly Typed Genetic
                 Programming (STGP) technique to evolve a stock market
                 divided into two groups-a small subset of artificial
                 agents called Best Agents and a main cohort of agents
                 named All Agents. The Best Agents perform best in term
                 of the trailing return of a wealth moving average. We
                 then investigate whether herding behaviour can arise
                 when agents trade Dow Jones, General Electric, and IBM
                 stocks in four different artificial stock markets. This
                 paper uses real historical quotes of the three
                 financial instruments to analyse the behavioural
                 foundations of stylised facts such as leptokurtosis,
                 non-IIDness, and volatility clustering. We found
                 evidence of more herding in a group of stocks than in
                 individual stocks, but the magnitude of herding does
                 not contribute to the mispricing of assets in the long
                 run. Our findings suggest that the price formation
                 process caused by the collective behaviour of the
                 entire market exhibit less herding and is more
                 efficient than the segmented market populated by a
                 small subset of agents. Hence, greater genetic
                 diversity leads to greater consistency with fundamental
                 values and market efficiency.",
}

Genetic Programming entries for Viktor Manahov Robert Hudson

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