Basic Stochastic Order-Book Model and Investors' Swarm Behaviors

Abstract

In this study, we studied large-scale price movements in the exchange market caused by investors' collective behaviors, and focused on the phenomenon created by local investors af- fecting each other and producing large-scale price uctuations as a group, which we denote as swarm behaviors. We think one of the factors of large-scale price movement is connected with certain swarm behaviors of investors. First, we present a basic stochastic order-book model in the continuous double auction mechanism. Next, we incorporate a follower type of investors' swarm behavior in the basic stochastic order-book model. Our study shows a characteristic called \fat tail" is seen in the data obtained from our model that incorporates the investors' swarm behaviors. The result demonstrated that one of the reasons the trend following of price occurs is that orders temporarily swarm on the order book in accordance with past price trends.