The roles of mean residence time on herd behavior in a financial market

• DOI: 10.1016/j.physa.2016.06.061
• Publication Date: 2016-06-18T22:16:49Z
• Authors: Jiang-Cheng Li; Yun-Xian Li; Nian-Sheng Tang; Dong-Cheng Mei
• Keywords: 0103 physical sciences; 01 natural sciences

Abstract We investigate the herd behavior of stock prices in a finance system with the Heston model. Based on parameter estimation of the Heston model obtained by minimizing the mean square deviation between the theoretical and empirical return distributions, we simulate mean residence time of positive return (MRTPR). Plots of MRTPR against the amplitude or mean reversion of volatility demonstrate a phenomenon of herd behavior for a positive cross correlation between noise sources of the Heston model. Also, for a negative cross correlation, a phenomenon of herd behavior is observed in plots of MRTPR against the long-run variance by increasing amplitude or mean reversion of volatility.