Study On Influential Factors Of Bubbles Based Modeling Of Artificial Stock Market

Bubbles are the phenomena that the stock price deviates the fundamental value, and the study of bubbles is the study of stock market in nature. While many researches show that the stock market is a complex adaptive system, being full of many abnormal phenomena that can't be explained by traditional finance.Furthermore, it's not long from the establishment of Chinese stock market, and Chinese stock market is in changing station, so empirical study being hard to be used. In order to overcome these difficulties, this paper takes a new research method, namely computational finance developed last 20 years, to do simulation study. Firstly, this paper designes and developes a double auction artificial stock market based order book according to Chinese stock market, using a Java development platform Eclipse3.1. For convenience, we calle this artificial stock market Chinese Artificial Stock Market(CASM in brief). The statistical analysis of simulation datum shows that stock returns distribution with fat tail, clustering volatility, long remember character and GARCH effect can be found in the CASM. The establishment of CASM provides a fundamental simulation platform for the research of the problems in Chinese stock market such as trader strategy, trader behaviour, design of the market mechanism and information asymmetry and so on.In sequence, this paper takes simulation study of the factors which affects stock market bubbles, such as proportion of technical traders, overconfidence of investors, behaviours of traders based on Prospect Theory, investment restriction of instruction investors and so on, using CASM. By the analytical study of the simulation outcome, we get some conclusions as follows:(1) When the number of technical traders is not far from the number of fundamental traders, bubbles don't appear. When the number of technical traders is much more than the number of fundamental traders, bubbles appear. (2) When the market contains the overconfident investors, the traded price vastly deviates from the fundamental value,and the higher the degree of overconfidence grows, the more the trader affects the trader price. (3) The technical traders based on Prospect Theory can make the traded price deviate from the fundamental value, and multiple inrational characteristics of investmentor's non-rational behavior may have larger impact on the market than a single one.(4)When investment restriction exists in the market, the bubbles appears easily. While no investment restriction exists in the market, the institution investor can enlarge their effects on the market by lending riskless assets, so that bubbles can be avoided. (5)In the market containing pre-trade information aysmmtrety, the information can't diffuse fully. Contrast to the market for information symmetry, large bubbles appears in market for information asymmetry.The major contribution of this paper is to indicate, using Agent- Based Approach, that the traditional financial theories may not be effective when their assumptions are extended to the ones closer to the reality. The models in this paper are simple in the sense that we have implemented very small parts of decision-making strategies and investment environments in the real world. Our future work is to take into consideration the many other deviations from rationality in decision-making and the differences in the amount of funds investors initially have.