Investor Behavior and Risk Contagion in an Information-Based Artificial Stock Market

Abstract

This paper designs an artificial stock market model to discuss investor behavior and risk contagion caused by market information. Considering the investors' trading decisions are attributed to the change of market information, new market information no matter from the macro field or the micro field can influence investor behavior and risk contagion. In our artificial stock market model, we assume new information is the sole factor affecting the fluctuation of stock prices. And investor sentiment is influenced by investor sensitivity to new information, investment decisions of neighboring investors, and investor understanding preference for new information. Through simulation experiments, some conclusions can be drawn as follows. Firstly, stock price volatility becomes stronger with increasing investor sensitivity to new information, under the condition of a smaller fundamental contagion coefficient or larger sensitivity to new information from investor neighbors. Secondly, stock price volatility becomes more moderate with increasing sensitivity to new information from investor neighbors, under the condition of a smaller fundamental contagion coefficient or smaller investor sensitivity to new information. Thirdly, with the increasing fundamental contagion coefficient, stock price volatility may strongly increase under the condition of smaller investor sensitivity to new information and smaller sensitivity to new information from investor neighbors, or slightly increase under the condition of smaller investor sensitivity to new information and larger sensitivity to new information from investor neighbors, or slightly decrease under the condition of larger investor sensitivity to new information and smaller sensitivity to new information from investor neighbors, or show a little change under the condition of larger investor sensitivity to new information and larger sensitivity to new information from investor neighbors.

Keywords

• Investor behavior
• risk contagion
• stock price volatility
• market information