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Learning about unprecedented events: Agent-based modelling and the stock market impact of COVID-19

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  • Bazzana, Davide
  • Colturato, Michele
  • Savona, Roberto

Abstract

We model the learning process of market traders during the unprecedented COVID-19 event. We introduce a behavioural heterogeneous agents’ model with bounded rationality by including a correction mechanism through representativeness (Gennaioli et al., 2015). To inspect the market crash induced by the pandemic, we calibrate the STOXX Europe 600 Index, when stock markets suffered from the greatest single-day percentage drop ever. Once the extreme event materializes, agents tend to be more sensitive to all positive and negative news, subsequently moving on to close-to-rational. We find that the deflation mechanism of less representative news seems to disappear after the extreme event.

Suggested Citation

  • Bazzana, Davide & Colturato, Michele & Savona, Roberto, 2023. "Learning about unprecedented events: Agent-based modelling and the stock market impact of COVID-19," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004579
    DOI: 10.1016/j.frl.2023.104085
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    References listed on IDEAS

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    Cited by:

    1. Marcin Rzeszutek & Jørgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04723512, HAL.
    2. Marcin Rzeszutek & Jørgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Post-Print hal-04723512, HAL.
    3. Marcin Rzeszutek & Jorgen Vitting Andersen & Adam Szyszka & Szymon Talaga, 2024. "Subjective Well-Being of Chief Executive Officers and Its Impact on Stock Market Volatility During the COVID-19 Pandemic in Poland: Agent-Based Model Perspective," Journal of Happiness Studies, Springer, vol. 25(7), pages 1-15, October.

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    More about this item

    Keywords

    Agent-based model; Representativeness; Unprecedented events; Asset pricing model; Heterogeneous expectations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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