2018/03/06 by Mingyuan Yang, Sai-Ping Li, Yang, Ming-Yuan +5
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Financial Markets and Investment Strategies #Statistical Finance (q-fin.ST) #Stock Market Forecasting Methods
paper · pdf · doi:10.48550/arxiv.1803.02019
openalex publication_date 2018/03/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Stock correlations is crucial to asset pricing, investor decision-making, and financial risk regulations. However, microscopic explanation based on agent-based modeling is still lacking. We here propose a model derived from minority game for modeling stock correlations, in which an agent's expected return for one stock is influenced by the historical return of the other stock. Each agent makes a decision based on his expected return with reference to information dissemination and the historical return of the stock. We find that the returns of the stocks are positively (negatively) correlated when agents' expected returns for one stock are positively (negatively) correlated with the historical return of the other. We provide both numerical simulations and analytical studies and give explanations to stock correlations for cases with agents having either homogeneous or heterogeneous expected returns. The result still holds when other factors such as holding decisions and external events are included which broadens the practicability of the model.