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Abstract

This paper develops and analyzes a models of asset markets with two types of investors. We study the stochastic processes for the distribution of wealth between the two types of investors and for the equilibrium asset returns. The relationship between this model and some econometric models with time varying parameter, such as the ARCH(Autoregressive Conditional Heteroskedasticity) model, as well as the relationship between the volume of trade and volatility, are examined. The dynamic properties of another model, regarding investors who use strategies that are a bit more complex, are also analyzed.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 55.

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Date of creation: Feb 1993
Date of revision: Jun 1993
Handle: RePEc:upf:upfgen:55

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Web page: http://www.econ.upf.edu/

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Find related papers by JEL classification:

• G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
• G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References

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1. D. Fudenberg & C. Harris, 2010. "Evolutionary Dynamics with Aggregate Shocks," Levine's Working Paper Archive 496, David K. Levine.
   
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   • Fudenberg, Drew & Harris, Christopher, 1992. "Evolutionary Dynamics with Aggregate Shocks," IDEI Working Papers 13, Institut d'Économie Industrielle (IDEI), Toulouse.
2. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
3. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
4. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
5. Giorgia Giovannetti & Albert Marcet & Ramon Marimon, 1993. "Growth, capital flows and enforcement constaints: The case of Africa," Economics Working Papers 22, Department of Economics and Business, Universitat Pompeu Fabra.
   
   • Giovannetti, Giorgia & Marcet, Albert & Marimon, Ramon, 1993. "Growth, capital flows and enforcement constraints : The case of Africa," European Economic Review, Elsevier, vol. 37(2-3), pages 418-425, April.
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8. 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.
   
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   • J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann,, . "The Survival of Noise Traders in Financial Markets," J. Bradford De Long's Working Papers _123, University of California at Berkeley, Economics Department.
9. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
10. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
    
    • J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
    • De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
11. 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.
12. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers 28, Department of Economics and Business, Universitat Pompeu Fabra.
    
    • Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-83, November.
13. Black, Fischer, 1986. " Noise," Journal of Finance, American Finance Association, vol. 41(3), pages 529-43, July.
14. 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.
15. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1992. "Stock Prices and Volume," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 199-242.
16. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Cowles Foundation Discussion Papers 719R, Cowles Foundation for Research in Economics, Yale University.

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Citations

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Cited by:

1. repec:ebl:ecbull:v:7:y:2007:i:15:p:1-8 is not listed on IDEAS
2. Angus A Brown & L C G Rogers, 2010. "Diverse Beliefs," Papers 1001.1450, arXiv.org.
3. Elyès Jouini & Clotilde Napp, 2010. "Unbiased Disagreement in financial markets, waves of pessimism and the risk return tradeoff," Post-Print halshs-00488481, HAL.
   
   • Elyès Jouini & Clotilde Napp, 2010. "Unbiased Disagreement in Financial Markets, Waves of Pessimism and the Risk-Return Trade-off," Review of Finance, European Finance Association, vol. 15(3), pages 575-601.
4. Granger, Clive W.J. & Machina, Mark J., 2006. "Structural attribution of observed volatility clustering," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 15-29.
5. LeBaron, Blake, 2000. "Agent-based computational finance: Suggested readings and early research," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 679-702, June.
6. Cees Diks & Roy van der Weide, 2003. "Heterogeneity as a Natural Source of Randomness," Tinbergen Institute Discussion Papers 03-073/1, Tinbergen Institute.
7. Droste, E.J.R. & Tuinstra, J., 1998. "Evolutionary Selection of Behavioral Rules in a Cournot Model: A Local Bifurcation Analysis," Discussion Paper 1998-86, Tilburg University, Center for Economic Research.
8. Mordecai Kurz, 2007. "Rational Diverse Beliefs and Economic Volatility," Discussion Papers 06-045, Stanford Institute for Economic Policy Research.
9. Rui Carvalho, 2001. "The Dynamics of the Linear Random Farmer Model," Papers cond-mat/0107150, arXiv.org.
10. Diks, C.G.H. & Weide, R. van der, 2003. "Heterogeneity as a natural source of randomness," CeNDEF Working Papers 03-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
11. Goeree, Jacob K. & Hommes, Cars H., 2000. "Heterogeneous beliefs and the non-linear cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 761-798, June.
12. Jouini, Elyès & Napp, Clotilde, . "Unbiased Disagreement and the Efficient Market Hypothesis," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/3495, Université Paris-Dauphine.
13. Matei Demetrescu, 2007. "Volatility Clustering in High-Frequency Data: A self-fulfilling prophecy?," Economics Bulletin, AccessEcon, vol. 7(15), pages 1-8.

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