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Asset Pricing Under Endogenous Expectations in an Artificial Stock Market

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Author Info

  • Arthur, W.B.
  • Holland, J.H.
  • LeBaron, B.
  • Palmer, R.
  • Tayler, P.

Abstract

We propose a theory of asset pricing based on heterogeneous agents who continually adapt their expectations to the market that these expectations aggregatively create. And we explore the implications of this theory computationally using our Santa Fe artificial stock market.

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Bibliographic Info

Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9625.

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Length: 27 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:att:wimass:9625

Contact details of provider:
Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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Keywords: ASSET PRICING; STOCK MARKET;

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References

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  1. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
  2. Frankel, Jeffrey A & Froot, Kenneth A, 1990. "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market," American Economic Review, American Economic Association, vol. 80(2), pages 181-85, May.
  3. Martin Shubik, 1996. "Time and Money," Cowles Foundation Discussion Papers 1112, Cowles Foundation for Research in Economics, Yale University.
  4. Diba, Behzad T & Grossman, Herschel I, 1988. "The Theory of Rational Bubbles in Stock Prices," Economic Journal, Royal Economic Society, vol. 98(392), pages 746-54, September.
  5. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
  6. repec:att:wimass:9706 is not listed on IDEAS
  7. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  8. E.R. Grannan & G.H. Swindle, 1994. "Contrarians and Volatility Clustering," Working Papers 94-03-010, Santa Fe Institute.
  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  10. Michael Youssefmir & Bernardo A. Huberman, 1995. "Clustered Volatility in Multiagent Dynamics," Working Papers 95-05-051, Santa Fe Institute.
  11. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  12. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
  14. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  15. David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988. "What Moves Stock Prices?," Working papers 487, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. repec:cup:etheor:v:11:y:1995:i:1:p:151-89 is not listed on IDEAS
  17. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
  18. Blume, Lawrence E. & Easley, David, 1982. "Learning to be rational," Journal of Economic Theory, Elsevier, vol. 26(2), pages 340-351, April.
  19. Marengo, Luigi & Tordjman, Helene, 1996. "Speculation, Heterogeneity and Learning: A Simulation Model of Exchange Rates Dynamics," Kyklos, Wiley Blackwell, vol. 49(3), pages 407-38.
  20. W. Brian Arthur, 1992. "On Learning and Adaptation in the Economy," Working Papers 854, Queen's University, Department of Economics.
  21. Bossaerts, Peter, 1995. "The Econometrics of Learning in Financial Markets," Econometric Theory, Cambridge University Press, vol. 11(01), pages 151-189, February.
  22. Friedman, Daniel & Aoki, Masanao, 1992. "Inefficient Information Aggregation as a," Bulletin of Economic Research, Wiley Blackwell, vol. 44(4), pages 251-79, October.
  23. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
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