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Wealth-Driven Competition in a Speculative Financial Market: Examples With Maximizing Agents

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  • Anufriev, M.

    ()
    (Universiteit van Amsterdam)

Abstract

This paper demonstrates how both quantitative and qualitative results of a general, analytically tractable asset-pricing model in which heterogeneous agents behave consistently with a constant relative risk aversion assumption can be applied to the special cases of optimizing behavior. The analysis of the asymptotic properties of the market is performed using a geometric approach which allows the visualization of all possible equilibria by means of a simple one-dimensional Equilibrium Market Curve. The case of linear (particularly, mean-variance) investment functions is thoroughly analyzed. This analysis highlights the features which are specific to the linear investment functions. As a consequence, some previous contributions of the agent-based literature are generalized.

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File URL: http://www1.fee.uva.nl/cendef/publications/papers/linear_rev1.pdf
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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 05-17.

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Date of creation: 2005
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Handle: RePEc:ams:ndfwpp:05-17

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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  1. Kroll, Yoram & Levy, Haim & Rapoport, Amnon, 1988. "Experimental tests of the mean-variance model for portfolio selection," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 42(3), pages 388-410, December.
  2. Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2002. "Evolutionary dynamics in markets with many trader types," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 02-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(431), pages 881-96, July.
  4. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, Elsevier, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
  5. Gulio Bottazzi & Mikhail Anufriev, 2006. "Price and Wealth Dynamics in a Speculative Market with Generic Procedurally Rational Traders," Working Papers, Warwick Business School, Finance Group wp06-02, Warwick Business School, Finance Group.
  6. Zschischang, Elmar & Lux, Thomas, 2001. "Some new results on the Levy, Levy and Solomon microscopic stock market model," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 291(1), pages 563-573.
  7. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(8-9), pages 1235-1274, August.
  8. Mikhail Anufriev & Giulio Bottazzi, 2005. "Price and Wealth Dynamics in a Speculative Market with an Arbitrary Number of Generic Technical Traders," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2005/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  9. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  10. Xue-Zhong (Tony) He & Carl Chiarella, 2001. "Asset Price and Wealth Dynamics under Heterogeneous Expectations," CeNDEF Workshop Papers, January 2001, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 5A.2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  11. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1988. "The Survival of Noise Traders in Financial Markets," NBER Working Papers 2715, National Bureau of Economic Research, Inc.
  12. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 14(3), pages 299-329, December.
  13. LeBaron, Blake & Arthur, W. Brian & Palmer, Richard, 1999. "Time series properties of an artificial stock market," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(9-10), pages 1487-1516, September.
  14. Franke, Reiner & Sethi, Rajiv, 1998. "Cautious trend-seeking and complex asset price dynamics," Research in Economics, Elsevier, Elsevier, vol. 52(1), pages 61-79, March.
  15. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198296942, October.
  16. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  17. Anufriev, Mikhail & Bottazzi, Giulio & Pancotto, Francesca, 2006. "Equilibria, stability and asymptotic dominance in a speculative market with heterogeneous traders," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(9-10), pages 1787-1835.
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Cited by:
  1. Anufriev, Mikhail & Bottazzi, Giulio, 2010. "Market equilibria under procedural rationality," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1140-1172, November.
  2. Pietro Dindo & Mikhail Anufriev, 2007. "Equilibrium Return and Agents' Survival in a Multiperiod Asset Market: Analytic Support of a Simulation Model," Working Papers, Warwick Business School, Finance Group wp07-03, Warwick Business School, Finance Group.
  3. Mikhail Anufriev & Pietro Dindo, 2007. "Wealth-driven Selection in a Financial Market with Heterogeneous Agents," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2007/27, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  4. Anufriev, M. & Dindo, P.D.E., 2007. "Wealth Selection in a Financial Market with Heterogeneous Agents," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 07-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  5. Hommes, C.H. & Wagener, F.O.O., 2008. "Complex evolutionary systems in behavioral finance," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 08-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  6. Chauveau, Th. & Subbotin, A., 2013. "Price dynamics in a market with heterogeneous investment horizons and boundedly rational traders," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(5), pages 1040-1065.
  7. Mikhail Anufriev & Giulio Bottazzi, 2006. "Behavioral Consistent Market Equilibria under Procedural Rationality," Computing in Economics and Finance 2006, Society for Computational Economics 225, Society for Computational Economics.
  8. Anufriev, M. & Bottazzi, G., 2009. "Market Equilibria under Procedural Rationality (revised version of WP 06-02)," CeNDEF Working Papers, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance 09-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  9. Dai, Darong, 2011. "Wealth Martingale and Neighborhood Turnpike Property in Dynamically Complete Market with Heterogeneous Investors," MPRA Paper 46416, University Library of Munich, Germany.
  10. Thierry Chauveau & Alexander Subbotin, 2010. "Price Dynamics in Market with Heterogeneous Investment Horizons and Boundedly Rational Traders," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00497427, HAL.
  11. Alexander Subbotin & Thierry Chauveau, 2010. "Price Dynamics in a Market with Heterogeneous Investment Horizons and Boundedly Rational Traders," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 10048, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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