Microfounding GARCH models and beyond: a Kyle-inspired model with adaptive agents
| Autor: | Michele Vodret, Iacopo Mastromatteo, Bence Tóth, Michael Benzaquen |
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| Rok vydání: | 2023 |
| Předmět: |
FOS: Economics and business
History Economics and Econometrics Quantitative Finance - Trading and Market Microstructure Polymers and Plastics Statistical Mechanics (cond-mat.stat-mech) Economics - Theoretical Economics Theoretical Economics (econ.TH) FOS: Physical sciences Business and International Management Condensed Matter - Statistical Mechanics Industrial and Manufacturing Engineering Trading and Market Microstructure (q-fin.TR) |
| Zdroj: | Journal of Economic Interaction and Coordination. 18:599-625 |
| ISSN: | 1860-7128 1860-711X |
| DOI: | 10.1007/s11403-023-00379-8 |
| Popis: | We relax the strong rationality assumption for the agents in the paradigmatic Kyle model of price formation, thereby reconciling the framework of asymmetrically informed traders with the Adaptive Market Hypothesis, where agents use inductive rather than deductive reasoning. Building on these ideas, we propose a stylised model able to account parsimoniously for a rich phenomenology, ranging from excess volatility to volatility clustering. While characterising the excess-volatility dynamics, we provide a microfoundation for GARCH models. Volatility clustering is shown to be related to the self-excited dynamics induced by traders' behaviour, and does not rely on clustered fundamental innovations. Finally, we propose an extension to account for the fragile dynamics exhibited by real markets during flash crashes. Comment: 20 pages, 8 figures |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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