Bimodal Dynamics of the Artificial Limit Order Book Stock Exchange with Autonomous Traders

TL;DR

This paper investigates the complex, bistable dynamics of an artificial stock market with autonomous traders, revealing how micro-level rules lead to divergent long-term price behaviors and inherent path dependence.

Contribution

It demonstrates that agent-based trading rules induce intrinsic bistability and complex dynamics in artificial markets, a novel insight into emergent market phenomena.

Findings

Presence of bistability in price dynamics

Identification of metastable volatility regions

Diverse transient behaviors observed

Abstract

This paper explores the bifurcative dynamics of an artificial stock market exchange (ASME) with endogenous, myopic traders interacting through a limit order book (LOB). We showed that agent-based price dynamics possess intrinsic bistability, which is not a result of randomness but an emergent property of micro-level trading rules, where even identical initial conditions lead to qualitatively different long-run price equilibria: a deterministic zero-price state and a persistent positive-price equilibrium. The study also identifies a metastable region with elevated volatility between the basins of attraction and reveals distinct transient behaviors for trajectories converging to these equilibria. Furthermore, we observe that the system is neither entirely regular nor fully chaotic. By highlighting the emergence of divergent market outcomes from uniform beginnings, this work contributes a novel perspective on the inherent path dependence and complex dynamics of artificial stock markets.