Heterogeneity and feedback in an agent-based market model

We propose an agent-based model of a single-asset financial market, described in terms of a small number of parameters, which generates price returns with statistical properties similar to the stylized facts observed in financial time series. Our agent-based model generically leads to the absence of autocorrelation in returns, self-sustaining excess volatility, mean-reverting volatility, volatility clustering and endogenous bursts of market activity nonattributable to external noise. The parsimonious structure of the model allows the identification of feedback and heterogeneity as the key mechanisms leading to these effects.