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

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  • Gunter M. Sch\"utz
  • Fernando Pigeard de Almeida Prado
  • Rosemary J. Harris
  • Vladimir Belitsky
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    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.

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    File URL: http://arxiv.org/pdf/0801.0003
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0801.0003.

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    Date of creation: Dec 2007
    Date of revision: Jun 2009
    Publication status: Published in Physica A 388 (2009) 4126-4144
    Handle: RePEc:arx:papers:0801.0003

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    Web page: http://arxiv.org/

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    Cited by:
    1. Jiri Kukacka & Jozef Barunik, 2012. "Behavioural breaks in the heterogeneous agent model: the impact of herding, overconfidence, and market sentiment," Papers 1205.3763, arXiv.org, revised May 2013.

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