Document Type

Working Paper

Publication Date


Working Paper Number

WP #14005, March 2014


This study develops a computational stock market model in which each trader's buying and selling decisions are endogenously determined by multiple factors: namely, firm profitability, past stock price movement, and imitation of other traders. Each trader can switch from being a buyer to a seller, and vice versa, depending on market conditions. Simulation findings demonstrate that the model can generate excess volatility, a fat-fail property, and the ARCH effect in stock returns. The results also suggest the importance of trader memory length for determining the stability of stock prices in response to dividend shocks.

JEL Classification

G11, G12, G17

File Format



32 pages

Included in

Economics Commons