Price dynamics in a financial market: zero-intelligence and herding behavior
Wei-Te Yu1*, Hsuan-Yi Chen1
1Department of Physics, National Central University, Taoyuan City, Taiwan
* presenting author:Wei-Te Yu,
We propose an agent-based model which operates on order book system to study how the price evolves in a financial market. In our model, agents have infinite money to put buying orders. First, agents with zero-intelligence put buying (selling) limit orders and market orders on the order book with specified probability. Then the results of zero-intelligence-agents simulations are compared to the markets with herding behavior. This allows us to distinguish features of price dynamics that could be attributed to the price-history-dependent trading behaviors and study what causes the big price changes.

Keywords: price dynamics, order book, financial market, herding behavior