Modeling Individual Actions and Interactions on the Microstructure Level

31 Pages Posted: 20 May 2013

See all articles by Otto Loistl

Otto Loistl

Vienna University of Economics and Business

Michael Huetl

Vienna University of Economics and Business

Emanuel Kopp

International Monetary Fund (IMF)

Johannes Prix

Vienna University of Economics and Business

Date Written: Dec 10, 2012

Abstract

Models of interacting agents are able to describe simultaneously the so-called stylized facts about financial markets. Agent-based financial market modeling basically constitutes a problem of organized complexity. Individual behavior is determined by both deterministic and stochastic factors that influence the decision process and, therefore, the choice or action of the decision-maker. In this paper, we propose a Discrete Choice model that is able to handle the complexity of individual decision-making in capital markets. The model integrates different classes of agents (i.e. segmentation), and explicitly models the role of market participants’ perception and attitudes. The market is entirely driven by interactions on the level of individual market participants. In order to model individual behavior realistically, we combine choice and expectations data, as stressed by Manski (2004).

Keywords: financial markets, market microstructure, behavioral finance, discrete choice theory, agent-based models

Suggested Citation

Loistl, Otto and Huetl, Michael and Kopp, Emanuel Albin and Prix, Johannes, Modeling Individual Actions and Interactions on the Microstructure Level (Dec 10, 2012). Available at SSRN: https://ssrn.com/abstract=2267154 or http://dx.doi.org/10.2139/ssrn.2267154

Otto Loistl

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Michael Huetl

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria
0043131336716 (Fax)

Emanuel Albin Kopp (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Johannes Prix

Vienna University of Economics and Business ( email )

Althanstr. 39-45
Vienna A-1090, Wien
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
67
Abstract Views
602
Rank
608,356
PlumX Metrics