Modeling of Stock Returns and Trading Volume
Taisei Kaizoji
TL;DR
This paper explores the statistical properties of stock returns and trading volume, demonstrating power-law distributions and proposing an agent-based model inspired by statistical mechanics to explain these phenomena.
Contribution
It introduces an interacting agent model that reproduces power-law behaviors in stock returns and trading volume, linking trader interactions to market dynamics.
Findings
Returns and volume follow power-law distributions
Increased trader interaction amplifies power-law behavior
Model aligns with empirical market data
Abstract
In this study, we investigate the statistical properties of the returns and the trading volume. We show a typical example of power-law distributions of the return and of the trading volume. Next, we propose an interacting agent model of stock markets inspired from statistical mechanics [24] to explore the empirical findings. We show that as the interaction among the interacting traders strengthens both the returns and the trading volume present power-law behavior.
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Taxonomy
TopicsComplex Systems and Time Series Analysis · Financial Risk and Volatility Modeling · Time Series Analysis and Forecasting