Advanced Search
MyIDEAS: Login to save this article or follow this journal

Short-time behaviour of demand and price viewed through an exactly solvable model for heterogeneous interacting market agents

Contents:

Author Info

  • Schütz, Gunter M.
  • de Almeida Prado, Fernando Pigeard
  • Harris, Rosemary J.
  • Belitsky, Vladimir
Registered author(s):

    Abstract

    We introduce a stochastic heterogeneous interacting-agent model for the short-time non-equilibrium evolution of excess demand and price in a stylized asset market. We consider a combination of social interaction within peer groups and individually heterogeneous fundamentalist trading decisions which take into account the market price and the perceived fundamental value of the asset. The resulting excess demand is coupled to the market price. Rigorous analysis reveals that this feedback may lead to price oscillations, a single bounce, or monotonic price behaviour. The model is a rare example of an analytically tractable interacting-agent model which allows us to deduce in detail the origin of these different collective patterns. For a natural choice of initial distribution, the results are independent of the graph structure that models the peer network of agents whose decisions influence each other.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0378437109004853
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 388 (2009)
    Issue (Month): 19 ()
    Pages: 4126-4144

    as in new window
    Handle: RePEc:eee:phsmap:v:388:y:2009:i:19:p:4126-4144

    Contact details of provider:
    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Heterogeneous interacting-agent model; Asset market; Social interaction; Collective behaviour; Temporal fluctuations; Price oscillations; Exactly solvable model of an asset market;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Cars H. Hommes, 2005. "Heterogeneous Agent Models in Economics and Finance," Tinbergen Institute Discussion Papers 05-056/1, Tinbergen Institute.
    2. Brock, W.A., 1991. "Understainding Macroeconomic Time Series Using Complex Systems Theory," Working papers 9111, Wisconsin Madison - Social Systems.
    3. Aleksiejuk, Agata & Hołyst, Janusz A. & Stauffer, Dietrich, 2002. "Ferromagnetic phase transition in Barabási–Albert networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 310(1), pages 260-266.
    4. Yannis M. Ioannides, 2004. "Topologies Of Social Interactions," Econometric Society 2004 North American Winter Meetings 287, Econometric Society.
    5. Horst, Ulrich, 2001. "Financial price fluctuations in a stock market model with many interacting agents," SFB 373 Discussion Papers 2001,36, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    6. Follmer, Hans & Horst, Ulrich & Kirman, Alan, 2005. "Equilibria in financial markets with heterogeneous agents: a probabilistic perspective," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 123-155, February.
    7. Lima, F.W.S. & Stauffer, D., 2006. "Ising model simulation in directed lattices and networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 359(C), pages 423-429.
    8. Scalas, Enrico & Kaizoji, Taisei & Kirchler, Michael & Huber, Jürgen & Tedeschi, Alessandra, 2006. "Waiting times between orders and trades in double-auction markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 366(C), pages 463-471.
    9. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
    10. Horst, Ulrich & Rothe, Christian, 2008. "Queuing, Social Interactions, And The Microstructure Of Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(02), pages 211-233, April.
    11. Liggett, Thomas M. & Rolles, Silke W. W., 2004. "An infinite stochastic model of social network formation," Stochastic Processes and their Applications, Elsevier, vol. 113(1), pages 65-80, September.
    12. Weisbuch, Gérard & Stauffer, Dietrich, 2003. "Adjustment and social choice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 651-662.
    13. Takayama,Akira, 1985. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521314985, April.
    14. D. Challet & A. Chessa & M. Marsili & Y-C. Zhang, 2001. "From Minority Games to real markets," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 168-176.
    15. Beja, Avraham & Goldman, M Barry, 1980. " On the Dynamic Behavior of Prices in Disequilibrium," Journal of Finance, American Finance Association, vol. 35(2), pages 235-48, May.
    16. Kaizoji, Taisei, 2000. "Speculative bubbles and crashes in stock markets: an interacting-agent model of speculative activity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 493-506.
    17. Lux, Thomas, 1998. "The socio-economic dynamics of speculative markets: interacting agents, chaos, and the fat tails of return distributions," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 143-165, January.
    18. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    19. Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
    20. Alfarano, Simone & Milakovic, Mishael, 2009. "Network structure and N-dependence in agent-based herding models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 78-92, January.
    21. Gordon, Mirta B. & Nadal, Jean-Pierre & Phan, Denis & Vannimenus, Jean, 2005. "Seller's dilemma due to social interactions between customers," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 356(2), pages 628-640.
    22. Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
    23. Cont, Rama & Bouchaud, Jean-Philipe, 2000. "Herd Behavior And Aggregate Fluctuations In Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 4(02), pages 170-196, June.
    24. Jean-Pierre Nadal & Denis Phan & Mirta Gordon & Jean Vannimenus, 2005. "Multiple equilibria in a monopoly market with heterogeneous agents and externalities," Quantitative Finance, Taylor & Francis Journals, vol. 5(6), pages 557-568.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Kukacka, Jiri & Barunik, Jozef, 2013. "Behavioural breaks in the heterogeneous agent model: The impact of herding, overconfidence, and market sentiment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(23), pages 5920-5938.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:388:y:2009:i:19:p:4126-4144. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.