Toward an understanding of market resilience: market liquidity and heterogeneity in the investor decision cycle
During liquidity shocks such as occur when margin calls force the liquidation of leveraged positions, there is a widening disparity between the reaction speed of the liquidity demanders and the liquidity providers. Those who are forced to sell typically must take action within the span of a day, whi...
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| Veröffentlicht in: | Journal of economic interaction and coordination 2016-10, Vol.11 (2), p.205-227 |
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| creator | Bookstaber, Richard Foley, Michael D. Tivnan, Brian F. |
| description | During liquidity shocks such as occur when margin calls force the liquidation of leveraged positions, there is a widening disparity between the reaction speed of the liquidity demanders and the liquidity providers. Those who are forced to sell typically must take action within the span of a day, while those who are providing liquidity do not face similar urgency. Indeed, the flurry of activity and increased volatility of prices during the liquidity shocks might actually reduce the speed with which many liquidity providers come to the market. To analyze these dynamics, we build upon previous agent-based models of financial markets, and specifically the Preis et. al (Europhys Lett 75(3):510–516,
2006
) model, to develop an order-book model with heterogeneity in trader decision cycles. The model demonstrates an adherence to important stylized facts such as a leptokurtic distribution of returns, decay of autocorrelations over moderate to long time lags, and clustering volatility. Consistent with empirical analysis of recent market events, we demonstrate the impact of heterogeneous decision cycles on market resilience and the stochastic properties of market prices. |
| doi_str_mv | 10.1007/s11403-015-0162-8 |
| format | Article |
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2006
) model, to develop an order-book model with heterogeneity in trader decision cycles. The model demonstrates an adherence to important stylized facts such as a leptokurtic distribution of returns, decay of autocorrelations over moderate to long time lags, and clustering volatility. Consistent with empirical analysis of recent market events, we demonstrate the impact of heterogeneous decision cycles on market resilience and the stochastic properties of market prices.</description><identifier>ISSN: 1860-711X</identifier><identifier>EISSN: 1860-7128</identifier><identifier>DOI: 10.1007/s11403-015-0162-8</identifier><language>eng</language><publisher>Berlin/Heidelberg: Springer Berlin Heidelberg</publisher><subject>Computer Appl. in Social and Behavioral Sciences ; Economic models ; Economic theory ; Economic Theory/Quantitative Economics/Mathematical Methods ; Economics ; Economics and Finance ; Finance ; Futures market ; Investments ; Investors ; Liquidity ; Market prices ; Mathematical and Computational Physics ; Regular Article ; Securities markets ; Stock exchanges ; Studies ; Suppliers ; Theoretical ; Volatility</subject><ispartof>Journal of economic interaction and coordination, 2016-10, Vol.11 (2), p.205-227</ispartof><rights>The Author(s) 2015</rights><rights>Springer-Verlag Berlin Heidelberg 2016</rights><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c423t-9c56d5f94abb37000f28e77c1cfb01bfc93715c173abe90a366f1d84ca95eca63</citedby><cites>FETCH-LOGICAL-c423t-9c56d5f94abb37000f28e77c1cfb01bfc93715c173abe90a366f1d84ca95eca63</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://link.springer.com/content/pdf/10.1007/s11403-015-0162-8$$EPDF$$P50$$Gspringer$$Hfree_for_read</linktopdf><linktohtml>$$Uhttps://link.springer.com/10.1007/s11403-015-0162-8$$EHTML$$P50$$Gspringer$$Hfree_for_read</linktohtml><link.rule.ids>314,776,780,27903,27904,41467,42536,51297</link.rule.ids></links><search><creatorcontrib>Bookstaber, Richard</creatorcontrib><creatorcontrib>Foley, Michael D.</creatorcontrib><creatorcontrib>Tivnan, Brian F.</creatorcontrib><title>Toward an understanding of market resilience: market liquidity and heterogeneity in the investor decision cycle</title><title>Journal of economic interaction and coordination</title><addtitle>J Econ Interact Coord</addtitle><description>During liquidity shocks such as occur when margin calls force the liquidation of leveraged positions, there is a widening disparity between the reaction speed of the liquidity demanders and the liquidity providers. Those who are forced to sell typically must take action within the span of a day, while those who are providing liquidity do not face similar urgency. Indeed, the flurry of activity and increased volatility of prices during the liquidity shocks might actually reduce the speed with which many liquidity providers come to the market. To analyze these dynamics, we build upon previous agent-based models of financial markets, and specifically the Preis et. al (Europhys Lett 75(3):510–516,
2006
) model, to develop an order-book model with heterogeneity in trader decision cycles. The model demonstrates an adherence to important stylized facts such as a leptokurtic distribution of returns, decay of autocorrelations over moderate to long time lags, and clustering volatility. 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2006
) model, to develop an order-book model with heterogeneity in trader decision cycles. The model demonstrates an adherence to important stylized facts such as a leptokurtic distribution of returns, decay of autocorrelations over moderate to long time lags, and clustering volatility. Consistent with empirical analysis of recent market events, we demonstrate the impact of heterogeneous decision cycles on market resilience and the stochastic properties of market prices.</abstract><cop>Berlin/Heidelberg</cop><pub>Springer Berlin Heidelberg</pub><doi>10.1007/s11403-015-0162-8</doi><tpages>23</tpages><oa>free_for_read</oa></addata></record> |
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| subjects | Computer Appl. in Social and Behavioral Sciences Economic models Economic theory Economic Theory/Quantitative Economics/Mathematical Methods Economics Economics and Finance Finance Futures market Investments Investors Liquidity Market prices Mathematical and Computational Physics Regular Article Securities markets Stock exchanges Studies Suppliers Theoretical Volatility |
| title | Toward an understanding of market resilience: market liquidity and heterogeneity in the investor decision cycle |
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