Econometric analysis of microscopic simulation models
Microscopic simulation models are often evaluated based on visual inspection of the results. This paper presents formal econometric techniques to compare microscopic simulation (MS) models with real-life data. A related result is a methodology to compare different MS models with each other. For this purpose, possible parameters of interest, such as mean returns, or autocorrelation patterns, are classified and characterized. For each class of characteristics, the appropriate techniques are presented. We illustrate the methodology by comparing the MS model developed by He and Li [J. Econ. Dynam. Control, 2007, 31, 3396-3426, Quant. Finance, 2008, 8, 59-79] with actual data.
|Keywords||econometric analysis, financial markets, market friction models, microscopic simulation models|
|Persistent URL||dx.doi.org/10.1080/14697680903460176, hdl.handle.net/1765/19644|
|Note||Accepted manuscript, First Published on: 28 April 2010|
Li, Y., Donkers, A.C.D., & Melenberg, B.. (2010). Econometric analysis of microscopic simulation models. Quantitative Finance, 10(10), 1187–1201. doi:10.1080/14697680903460176