A Quantitative-Behavioural Approach to Modelling Stock Market's Microstructure
Michael Huetl 0, Otto Loistl, Johannes Prix
0Vienna University of Economics and Business Administration
Available Online October 2006.
- https://doi.org/10.2991/jcis.2006.167How to use a DOI?
- market microstructure, discrete choice, markov process, behavioral finance
- 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.
- Open Access
- This is an open access article distributed under the CC BY-NC license.
Cite this article
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 - 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 - https://doi.org/10.2991/jcis.2006.167 ID - Huetl2006/10 ER -