title: Agent-based model with multi-level herding for complex financial systems.
abstract: In complex financial systems, the sector structure and volatility clustering are respectively important features of the spatial and temporal correlations. However, the microscopic generation mechanism of the sector structure is not yet understood. Especially, how to produce these two features in one model remains challenging. We introduce a novel interaction mechanism, i.e., the multi-level herding, in constructing an agent-based model to investigate the sector structure combined with volatility clustering. According to the previous market performance, agents trade in groups, and their herding behavior comprises the herding at stock, sector and market levels. Further, we propose methods to determine the key model parameters from historical market data, rather than from statistical fitting of the results. From the simulation, we obtain the sector structure and volatility clustering, as well as the eigenvalue distribution of the cross-correlation matrix, for the New York and Hong Kong stock exchanges. These properties are in agreement with the empirical ones. Our results quantitatively reveal that the multi-level herding is the microscopic generation mechanism of the sector structure, and provide new insight into the spatio-temporal interactions in financial systems at the microscopic level.
authors: 1] Department of Physics, Zhejiang University, Hangzhou 310027, China [2] Collaborative Innovation Center of Advanced Microstructures, Nanjing University, Nanjing 210093, China.
authors: Jun-Jie
authors: JJ
authors: Chen
authors: 1] Department of Physics, Zhejiang University, Hangzhou 310027, China [2] Collaborative Innovation Center of Advanced Microstructures, Nanjing University, Nanjing 210093, China.
authors: Lei
authors: L
authors: Tan
authors: 1] Department of Physics, Zhejiang University, Hangzhou 310027, China [2] Collaborative Innovation Center of Advanced Microstructures, Nanjing University, Nanjing 210093, China.
authors: Bo
authors: B
authors: Zheng