Microstructure dynamics and agent-based financial markets

Authors:
Shu-Heng Chen;Michael Kampouridis;Edward Tsang
Affiliations:
AI-ECON Research Center, Department of Economics, National Chengchi University, Taiwan;School of Computer Science and Electronic Engineering, University of Essex, UK;School of Computer Science and Electronic Engineering, University of Essex, UK
Venue:
MABS'10 Proceedings of the 11th international conference on Multi-agent-based simulation
Year:
2010

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Abstract

One of the essential features of the agent-based financial models is to show how price dynamics is affected by the evolving microstructure. Empirical work on this microstructure dynamics is, however, built upon highly simplified and unrealistic behavioral models of financial agents. Using genetic programming as a rule-inference engine and self-organizing maps as a clustering machine, we are able to reconstruct the possible underlying microstructure dynamics corresponding to the underlying asset. In light of the agent-based financial models, we further examine the microstructure both in terms of its short-term dynamics and long-term distribution. The time series of the TAIEX is employed as an illustration of the implementation of the idea.