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Equilibrium Return and Agents' Survival in a Multiperiod Asset Market: Analytic Support of a Simulation Model

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Author Info

  • Anufriev, M.

    ()
    (Universiteit van Amsterdam)

  • Dindo, P.D.E.

    ()
    (Sant'Anna School of Advanced Studies, Pisa)

Abstract

We provide explanations for the results of the Levy, Levy and Solomon model, a recent simulation model of financial markets. These explanations are based upon mathematical analysis of a dynamic model of a market with an arbitrary number of heterogeneous investors allocating their wealth between two assets. The investors' choices are endogenously modeled in a general way and, in particular, consistent with the maximization of an expected utility. We characterize the equilibria of the model and their stability and discuss implications for the market return and agents' survival. These implications are in agreement with the results of previous simulations. Thus, our analytic approach allows to explore the robustness of the previous analysis and to expand its spectrum.

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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 06-03.

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Date of creation: 2006
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Handle: RePEc:ams:ndfwpp:06-03

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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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References

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  1. 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.
  2. Medio,Alfredo & Lines,Marji, 2001. "Nonlinear Dynamics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521551861.
  3. 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.
  4. Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2003. "Evolutionary Stability of Portfolio Rules in Incomplete Markets," Discussion Papers 03-03, University of Copenhagen. Department of Economics.
  5. Levy, Moshe & Levy, Haim & Solomon, Sorin, 1994. "A microscopic model of the stock market : Cycles, booms, and crashes," Economics Letters, Elsevier, Elsevier, vol. 45(1), pages 103-111, May.
  6. Carl Chiarella & Roberto Dieci & Laura Gardini, 2004. "Asset Price and Wealth Dynamics in a Financial Market with Heterogeneous Agents," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 134, Quantitative Finance Research Centre, University of Technology, Sydney.
  7. Carl Chiarella & Xue-Zhong He, 2002. "An Adaptive Model on Asset Pricing and Wealth Dynamics with Heterogeneous Trading Strategies," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 84, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Carl Chiarella & Roberto Dieci & Xue-Zhong He, 2005. "Heterogeneous Expectations and Speculative Behaviour in a Dynamic Multi-Asset Framework," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 166, Quantitative Finance Research Centre, University of Technology, Sydney.
  9. 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.
  10. Mikhail Anufriev, 2005. "Wealth-Driven Competition in a Speculative Financial Market: Examples with Maximizing Agents," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2005/27, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  11. 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.
  12. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  13. Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, Econometric Society, vol. 68(6), pages 1303-1342, November.
  14. Gaunersdorfer, Andrea, 2000. "Endogenous fluctuations in a simple asset pricing model with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(5-7), pages 799-831, June.
  15. Medio,Alfredo & Lines,Marji, 2001. "Nonlinear Dynamics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521558747.
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Cited by:
  1. Anufriev, Mikhail & Dindo, Pietro, 2010. "Wealth-driven selection in a financial market with heterogeneous agents," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 73(3), pages 327-358, March.

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