Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 383, Issue 1, Pages 85-89Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.physa.2007.04.090
Keywords
microstructure; agent-based; long-memory; order flow
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This paper introduces an order-driven market with heterogeneous investors, who submit limit or market orders according to their own trading rules. The trading rules are repeatedly updated via simple learning and adaptation of the investors. We analyze markets with and without learning and adaptation. The simulation results show that our model with learning and adaptation successfully replicates long-memories in trading volume, stock return volatility, and signs of market orders in an informationally efficient market. We also discuss why evolutionary dynamics are important in generating these features. (c) 2007 Elsevier B.V. All rights reserved.
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