Strategic updating of threshold response in an agent-based market model.
Résumé
I propose an agent-based model of a single-asset financial market described in terms of few parameters. I show that the effect of agents adjusting their threshold response to new information is to generate a market price which fluctuates endlessly and a volatility which displays a mean-reverting behavior. This agent-based model generically leads to an absence of autocorrelation in returns, excess volatility, volatility clustering, and endogeneous bursts of activity that is not attributable to external noise. This study illustrates a possible link between the famous El Farol bar problem and financial markets.