Article ID Journal Published Year Pages File Type
7358656 Journal of Economic Dynamics and Control 2018 18 Pages PDF
Abstract
We introduce time-varying measures of price discovery based on underlying profit maximizing behavior by combining the heterogeneous agent modelling literature with the market microstructure literature. We set up a heterogeneous agent model with arbitrageurs and trend chasers (chartists), and allow agents to switch between the strategies conditional on recent forecasting performance. Estimation of the model on Canadian-US cross-listed stocks on high-frequency data shows that there is significant heterogeneity and switching, causing ample variation in the information processing capacity of markets.
Related Topics
Physical Sciences and Engineering Mathematics Control and Optimization
Authors
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