Open Models of Share Markets with Two Dominant Types of Participants

This paper examines a share market by using a jump Markov process to model entries, exits and switchings of trading rules by a large number of interacting participants in the market. The paper examines stationary distributions of clusters of agents by strategies. We concentrate on situations where behavior of market participants are positively correlated. In these cases about 95 percent of the market participants can be shown to belong to two largest subgroups of agents with two trading rules. Contributions of the remaining 5 percent or so of participants are ignored in examining the market behavior as a whole. Market excess demand and price dynamics are examined in this framework. At the end a possibility for the existence of a power law is raised.

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