Explaining the statistical features of the Spanish stock market from the bottom-up

Abstract

In this paper, we use an agent based artificial stock market to explore the relations between the heterogeneity of investors behaviour and the aggregated behaviour of financial markets. In particular, we want to recover the main statistical features of the Spanish Stock Market, as the high levels of kurtosis, excess volatility, non normality of prices and returns, unit roots and volatility clustering. We realise that we cannot catch up most of this features in a market populated only with fundamental investors, so we need to include more heterogeneity in agents behaviour. We include psychological investors who change their risk aversion following the ideas by Kahneman and Tversky (1979) and technical traders who buy or sell depending on crosses of moving averages. The main conclusion is that, in this particular artificial stock market, psychological investors are related to volatility clustering whereas technical trading has more to do with unit roots. © 2006 Springer-Verlag Berlin Heidelberg.