A Quantitative-Behavioural Approach to Modelling Stock Market's Microstructure

DOI

10.2991/jcis.2006.167How to use a DOI?

Keywords

market microstructure, discrete choice, markov process, behavioral finance

Abstract

We present a Markov process that provides an analytical framework for a comprehensive analysis of trading efficiency comprising price and order data. Agents place orders and/or accept already placed orders. Transactions are generated by matching orders. We apply the well known Discrete Choice logit approach based on Random Utility Maximization. The causal foundation of the model rests on the basic decision making principle: The higher the utility of an action, i.e. lacing an order or accepting an order, the higher the probability that this action is realized. We determine the Markov process transition probabilities by the logit's action probabilities, thus creating a doubly stochastic Markov process. We are therefore in the position to implement the asynchronous structure of market events, especially modelling the endogenously determined and varying waiting time between events at the stock market.

Copyright

© 2006, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Michael Huetl
AU  - Otto Loistl
AU  - Johannes Prix
PY  - 2006/10
DA  - 2006/10
TI  - A Quantitative-Behavioural Approach to Modelling Stock Market's Microstructure
BT  - Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)
PB  - Atlantis Press
SP  - 628
EP  - 631
SN  - 1951-6851
UR  - https://doi.org/10.2991/jcis.2006.167
DO  - 10.2991/jcis.2006.167
ID  - Huetl2006/10
ER  -