The dynamic behaviour of asset prices in disequilibrium: a survey
AbstractThis article surveys boundedly rational heterogeneous agent (BRHA) models of financial markets. We give particular emphasis to the role of the market clearing mechanism used, the utility function of the investors, the interaction of price and wealth dynamics, and calibration of this class of models. Due to agents' behavioural features and market noise, the BRHA class of models are both non-linear and stochastic. We show that BRHA models produce both a locally stable fundamental equilibrium corresponding to that of the standard paradigm, as well as instability with a consequent rich range of possible complex behaviours that are analysed by both simulation and deterministic bifurcation analysis. A calibrated model is able to reproduce quite well the stylised facts of financial markets. The BRHA framework seems able to better accommodate market features such as fat tails, volatility clustering, large excursions from the fundamental and bubbles than the standard financial market paradigm.
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Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal International Journal of Behavioural Accounting and Finance.
Volume (Year): 2 (2011)
Issue (Month): 2 (January)
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Web page: http://inderscience.metapress.com/link.asp?target=journal&id=121263
bounded rationality; interacting heterogeneous agents; behavioural finance; nonlinear economic dynamics; asset prices; disequilibrium; financial markets; modelling; fat tails; volatility clustering; financial bubbles;
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- Carl Chiarella & Xue-Zhong He & Min Zheng, 2007. "The Stochastic Dynamics of Speculative Prices," Research Paper Series 208, Quantitative Finance Research Centre, University of Technology, Sydney.
- Jan Wenzelburger, 2010. "The two-fund separation theorem revisited," Annals of Finance, Springer, vol. 6(2), pages 221-239, March.
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