A stock market model based on the interaction of heterogeneous traders’ behavior

Abstract

Human factors determine the behavior of people and further influence the interaction of people. In the stock market, traders usually determine their investment strategy not only according to their own viewpoints but also take some advice of others at various degrees. The heterogeneity and irrational behavior of traders in the stock market affect stock price volatility. This paper constructs a model describing the interaction of heterogeneous traders by introducing Lotka-Volterra equation that can properly represent the complex interaction of heterogeneous groups of creatures. We analyze the quantitative variation of heterogeneous traders under various degrees of herding effect, and explore the relationship between stock price and herding effect. Besides, plenty of nonlinear dynamics are shown and we consider that this may available to explain common phenomena in the stock market system.