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Article Dans Une Revue Journal of Economic Interaction and Coordination Année : 2023

Microfounding GARCH Models and Beyond: A Kyle-inspired Model with Adaptive Agents

Michele Vodret
  • Fonction : Auteur
Iacopo Mastromatteo
  • Fonction : Auteur
Bence Tóth
  • Fonction : Auteur
Michael Benzaquen

Résumé

We relax the strong rationality assumption for the agents in the paradigmatic Kyle model of price formation, thereby reconciling the framework of asymmetrically informed traders with the Adaptive Market Hypothesis, where agents use inductive rather than deductive reasoning. Building on these ideas, we propose a stylised model able to account parsimoniously for a rich phenomenology, ranging from excess volatility to volatility clustering. While characterising the excess-volatility dynamics, we provide a microfoundation for GARCH models. Volatility clustering is shown to be related to the self-excited dynamics induced by traders' behaviour, and does not rely on clustered fundamental innovations. Finally, we propose an extension to account for the fragile dynamics exhibited by real markets during flash crashes.
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Dates et versions

hal-03797251 , version 1 (04-10-2022)

Identifiants

  • HAL Id : hal-03797251 , version 1

Citer

Michele Vodret, Iacopo Mastromatteo, Bence Tóth, Michael Benzaquen. Microfounding GARCH Models and Beyond: A Kyle-inspired Model with Adaptive Agents. Journal of Economic Interaction and Coordination, 2023, 18, pp.599. ⟨hal-03797251⟩
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