Application of artificial stock market in the stock market trading mechanism

Price Limits is one of the important content of Chinese stock market trading mechanism, which is a kind of regulatory measures used by Securities regulators for curbing excessive fluctuations and maintaining the capital market stabilizing. But for its great affect to the financial markets, it's not changed often and easily. Traditionally, empirical study for price limits is only used after the implementation of the policy, and so we can hardly forecast the effects if the policy is not carried out. Agent-based artificial stock market (ASM) which is a bottom-up simulation method for study various complex questions of real stock market can make up for lack of empirical analysis. So, this paper uses the artificial stock market (ASM) to study the stock market trading mechanism. Firstly, this paper reports the construction of artificial stock market based on the Arthur's artificial stock market. It emerges the similar facts with real data in Chinese stock market. From this point, the artificial stock market can not only generate stock price trends and properties rather similar to the real stock market, but also show the fractal structure in deep consistency with the real stock market. Finally, this paper uses the artificial stock market to study the stock market trading mechanism. The results show that regardless of how to design the magnitude of the price limit, volatility increased gradually with the increase in the proportion of technical traders. And second result is that the establishment of price limits is helpful to reduce the volatility of the stock market when the technical trader is less than 50% in the market. On the contrary, the establishment of price limits not only can not reduce the volatility of the stock market, but it will increase the volatility when the technical trader is more than 50% in the market.