Stock Market Bubbles With Noise Trading And Empirical Research On Dynamic Simulation

After Black's important work about noise in 1986, De Long, Shleifer, Summers and Waldmann succeeded made a basic model about noise trading in financial market in 1990. They published an article about positive feedback traders in the same year. Form then on, they established bases about speculative stock price bubbles. At the same time, the institutors of Santa Fe Institute developed an artificial stock market. With the publication of papers of Palmer etc and Arthur, a new branch of finance, named agent-based computational finance, came into being.Combining the noise trading theory and agent-based computational finance, this paper looks into the irrational bubbles and the noise trading. Unlike the former research, this paper will find the reason of the stock price bubbles from the point of cognition biases and microcosmic trading strategies.The research comes as follows. On one hand, it studies the ASM composed of rational investors and positive feedback investors, extending the model form De Long. On the other hand, adding noise traders to the markets, the work find out the change of the bubbles. At last, with the use of agent-based computational finance, this paper inspects the influence of the bubbles with the respect of different study frequency.