Econometric analysis of microscopic simulation models

Li, Youwei; Donkers, Bas; Melenberg, Bertrand

Abstract

Microscopic simulation models are often evaluated based on visual inspection of the results. This paper presents formal econometric techniques to compare microscopic simulation (MS) models with real-life data. A related result is a methodology to compare different MS models with each other. For this purpose, possible parameters of interest, such as mean returns, or autocorrelation patterns, are classified and characterized. For each class of characteristics, the appropriate techniques are presented. We illustrate the methodology by comparing the MS model developed by He and Li [J. Econ. Dynam. Control, 2007, 31, 3396–3426, Quant. Finance, 2008, 8, 59–79] with actual data.

Citation

Li, Y., Donkers, B., & Melenberg, B. (2010). Econometric analysis of microscopic simulation models. Quantitative finance, 10(10), 1187-1201. https://doi.org/10.1080/14697680903460176

• Journal Article Type: Article
• Acceptance Date: Nov 3, 2009
• Online Publication Date: Apr 28, 2010
• Publication Date: 2010-12
• Deposit Date: Mar 19, 2019
• Journal: Quantitative Finance
• Print ISSN: 1469-7688
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 10
• Issue: 10
• Pages: 1187-1201
• DOI: https://doi.org/10.1080/14697680903460176
• Keywords: Econometric analysis; Financial markets; Market fraction model; Microscopic simulation models
• Public URL: https://hull-repository.worktribe.com/output/1113531
• Publisher URL: https://www.tandfonline.com/doi/abs/10.1080/14697680903460176