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A simulated electronic market with speculative behaviour and bubble formation

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  • Cofre, Nicolas
  • Mosionek-Schweda, Magdalena

Abstract

This paper presents an agent-based model of an electronic market with two types of trading agents. One type follows a mean reverting strategy and the other, the speculative trader, tracks the maximum realized return. Our research provides synthetic datasets of the order book (level 3) to study its dynamics under different levels of speculation. Inspired by the GameStop trading frenzy, we study the impact of a trading halt by the market maker on one side of the order book. We have also tested a performance-based limit on leverage, that allows leverage only to profitable traders.

Suggested Citation

  • Cofre, Nicolas & Mosionek-Schweda, Magdalena, 2024. "A simulated electronic market with speculative behaviour and bubble formation," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s154461232400775x
    DOI: 10.1016/j.frl.2024.105745
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    References listed on IDEAS

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