A model of information flows and confirmatory bias in financial markets

摘要

An agent-based artificial market is developed to investigate the impact of confirmatory bias on volatility and kurtosis in one-period returns. Sentiment investors (similar to chartists) trade based on their assessment of future prices and the views of connected neighbours. Confirmatory bias reduces volatility and kurtosis, as new information becomes biased towards their previous decision thereby reducing trading activity. However, when the trading volume of the fundamental investor is low, confirmatory bias increases the levels of kurtosis in return suggesting that while overall trading activity of the sentiment investors falls, it becomes more coordinated.