Learning about unprecedented events: Agent-based modelling and the stock market impact of COVID-19
G11, G12, G14, C63
Agent-based model, Representativeness, Unprecedented events, Asset pricing model, Heterogeneous expectations
Finance Research Letters, Volume 56, September 2023, 104085
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.
Si segnala che l’articolo scientifico è comparso, in precedenza, come Working Paper 026.2021 nella collana FEEM ‘Note d Lavoro’.