Published Paper

Inserted: 11 sep 2023
Last Updated: 11 sep 2023

Journal: Finance Research Letters
Year: 2023
Doi: 10.1016/j.frl.2023.104085

Abstract:

We model the learning process of market traders during the unprecedented COVID-19 event. We introduce a behavioural heterogeneous agents’ model with bounded rationality by including a correction mechanism through representativeness (Gennaioli et al., 2015). To inspect the market crash induced by the pandemic, we calibrate the STOXX Europe 600 Index, when stock markets suffered from the greatest single-day percentage drop ever. Once the extreme event materializes, agents tend to be more sensitive to all positive and negative news, subsequently moving on to close-to-rational. We find that the deflation mechanism of less representative news seems to disappear after the extreme event.

Keywords: Agent-based modelling

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