Examining the Effects of Traders’ Overconfidence on Market Behavior

This paper provides an agent-based artificial financial market to examine the effects of traders ’ overconfidence. Traders ’ overconfidence is presented in the way that they usually underestimate their volatility. We find that overconfidence results in higher volatility, price distortion, and trading volume. The phenomena of fat-tail of return distribution and volatility clustering are more significant when traders are overconfident