System Dynamics: An Stock Index Model Applied to the Mexican Case

Anzaldo G, Benavides G, & Téllez-León E (2018). System Dynamics: An Stock Index Model Applied to the Mexican Case. In: Recent Topics in Time Series and Finance: Theory and Applications in Emerging Markets. pp. 237-261 Guadalajara, Mexico: Universidad de Guadalajara. ISBN 978-607-547-003-0 DOI:10.2139/ssrn.3168060.

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Abstract

In this chapter we propose a dynamic model, it brings together the major macroeconomic variables, which impact the price index of the Mexican Stock Exchange (IPC). The daily variations of this index are an indicator of how private agents perceive the economic environment. The relevance of the work here proposed is related with two elements, qualitative and quantitative information, that are considered essential for all modern business models. In terms of qualitative information, we consider elements of financial-economic relations, which affect directly on the stock index. Regard to the quantitative information, the impact that economic and financial variables will have on the IPC can be measured with the dynamic model using the System-Dynamics-Methodology, it has been developed since the mid-twentieth century, which, it allows to build the interrelations among variables, through ordinary differential equations of the first order by variable, but when they are interacting conform a system of differential equations, which is solved numerically. We start with initial conditions observed and estimated through a VAR, the calibrated the model. Then, we contrast the baseline scenario of initial conditions with respect to the simulated scenarios, these involve a decision by regulators to external shocks (both positive and negative). This proposal allows simultaneously analyze the behavior of several components of the economic and financial system, whose behavior is reflected in the dynamics of IPC.

Item Type: Book Section
Uncontrolled Keywords: Stock Index, Computational Techniques and Simulation Modeling, Financial Econometrics, Information and Market Efficiency
Research Programs: Advanced Systems Analysis (ASA)
Evolution and Ecology (EEP)
Risk & Resilience (RISK)
Depositing User: Luke Kirwan
Date Deposited: 08 Jan 2019 13:52
Last Modified: 02 Apr 2019 10:35
URI: http://pure.iiasa.ac.at/15671

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