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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 7: Poster

SOE 7.17: Poster

Montag, 12. März 2018, 17:00–20:00, Poster E

On the power-law tail of financial returns: The role of coordinated trading behaviour of heterogeneous speculators — •Ivonne Blaurock, Noemi Schmitt, and Frank Westerhoff — University of Bamberg, Department of Economics, Germany

We propose a novel agent-based financial market model in which the trading behaviour of heterogeneous interacting speculators causes bubbles and crashes, excess volatility, serially uncorrelated returns, fat-tailed return distributions, and volatility clustering. The first three statistical properties are basically due to the speculators' heterogeneity since they all follow their own individual trading signals derived from fundamental and technical analysis. Our main attention here is on the model's ability to produce fat-tailed return distributions and volatility clustering. Schmitt and Westerhoff (JEE, 2017) found that sunspot events may lead to temporary coordination of speculators' trading behaviour. If speculators collectively react to similar trading signals, heterogeneity spontaneously vanishes and extreme returns emerge. Instead of sunspots, our model endogenously generates short-lived periods in which speculators' behaviour is coordinated causing market turmoil. Periods of high volatility are long-lasting since speculators persistently receive strong trading signals due to past price movements.