We build a model in which asset prices are expectationally driven and agents forecast future prices hinging on a combination of fundamental value, trend and inertia. The model has a unique steady state and we investigate its stability. In particular the amount of behavioural heterogeneity in the model is given by the number of intermediaries actually operating in the market: we are concerned with the effects that changing such number produces on the steady state in terms of stability. Assuming that the set of relevant intermediaries is sampled randomly we discuss the probability of having stability as a function of the market's parameters and the number of such agents. Our simulations show that stability in the multi-agent setting does not require that conditions for stability in the representative agent case be met for every individual; so stability can arise even if some of the agents would not be compatible with it if they were the only ones operating in the market. The same goes for instability. Further, we find that stabilising (or destabilising) effects of heterogeneity are not uniform across the market's essential characteristics, as captured by a given structural parameter: in fact we can identify a parametric region in which heterogeneity is stabilising and another in which it is destabilising.
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Paper provided by Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze in its series DiMaD Working Papers with number
2006-01.
Length: 31 Date of creation: Nov 2006 Date of revision: Publication status: Published as Domenico Colucci and Vincenzo Valori, 2008. "Asset Price Dynamics When Behavioural Heterogeneity Varies," Computational Economics, Springer, vol. 32(1), pages 3-20. Handle: RePEc:flo:wpaper:2006-01
Find related papers by JEL classification: G12 - Financial Economics - - General Financial Markets - - - Asset Pricing D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Alok Johri & John Leach, 2002.
"Middlemen and the Allocation of Heterogeneous Goods,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 347-362, May.
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