Short-time behaviour of demand and price viewed through an exactly solvable model for heterogeneous interacting market agents
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 388 (2009)
Issue (Month): 19 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
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.:
- Brock, W.A., 1991.
"Understainding Macroeconomic Time Series Using Complex Systems Theory,"
9111, Wisconsin Madison - Social Systems.
- Brock, William A., 1991. "Understanding macroeconomic time series using complex systems theory," Structural Change and Economic Dynamics, Elsevier, vol. 2(1), pages 119-141, June.
- D. Challet & A. Chessa & M. Marsili & Y. -C. Zhang, 2000.
"From Minority Games to real markets,"
- Denis Phan & Mirta Gordon & J.-P. Nadal & J. Vannimenus, 2005.
"Multiple equilibria in a monopoly market with heterogeneous agents and externalities,"
- Jean-Pierre Nadal & Denis Phan & Mirta Gordon & Jean Vannimenus, 2005. "Multiple equilibria in a monopoly market with heterogeneous agents and externalities," Quantitative Finance, Taylor & Francis Journals, vol. 5(6), pages 557-568.
- Cars H. Hommes, 2005.
"Heterogeneous Agent Models in Economics and Finance,"
Tinbergen Institute Discussion Papers
05-056/1, Tinbergen Institute.
- Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
- Lima, F.W.S. & Stauffer, D., 2006. "Ising model simulation in directed lattices and networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 359(C), pages 423-429.
- Aleksiejuk, Agata & Hołyst, Janusz A. & Stauffer, Dietrich, 2002. "Ferromagnetic phase transition in Barabási–Albert networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 310(1), pages 260-266.
- Weisbuch, Gérard & Stauffer, Dietrich, 2003. "Adjustment and social choice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 651-662.
- Horst, Ulrich, 2001.
"Financial price fluctuations in a stock market model with many interacting agents,"
SFB 373 Discussion Papers
2001,36, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Ulrich Horst, 2005. "Financial price fluctuations in a stock market model with many interacting agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 917-932, 06.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Gordon, Mirta B. & Nadal, Jean-Pierre & Phan, Denis & Vannimenus, Jean, 2005.
"Seller's dilemma due to social interactions between customers,"
Physica A: Statistical Mechanics and its Applications,
Elsevier, vol. 356(2), pages 628-640.
- Mirta Gordon & Jean-Pierre Nadal & Denis Phan & Jean Vannimenus, 2005. "Sellers dilemna due to social interactions between customers," Post-Print halshs-00078451, HAL.
- Liggett, Thomas M. & Rolles, Silke W. W., 2004. "An infinite stochastic model of social network formation," Stochastic Processes and their Applications, Elsevier, vol. 113(1), pages 65-80, September.
- Horst, Ulrich & Rothe, Christian, 2008. "Queuing, Social Interactions, And The Microstructure Of Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(02), pages 211-233, April.
- Scalas, Enrico & Kaizoji, Taisei & Kirchler, Michael & Huber, Jürgen & Tedeschi, Alessandra, 2006.
"Waiting times between orders and trades in double-auction markets,"
Physica A: Statistical Mechanics and its Applications,
Elsevier, vol. 366(C), pages 463-471.
- Enrico Scalas & Taisei Kaizoji & Michael Kirchler & Juergen Huber & Alessandra Tedeschi, 2006. "Waiting times between orders and trades in double-auction markets," Papers physics/0608273, arXiv.org.
- Beja, Avraham & Goldman, M Barry, 1980. " On the Dynamic Behavior of Prices in Disequilibrium," Journal of Finance, American Finance Association, vol. 35(2), pages 235-48, May.
- Yannis M. Ioannides, 2004.
"Topologies Of Social Interactions,"
Econometric Society 2004 North American Winter Meetings
287, Econometric Society.
- Yannis Ioannides, 2001. "Topologies of Social Interactions," Discussion Papers Series, Department of Economics, Tufts University 0104, Department of Economics, Tufts University.
- Taisei Kaizoji, 2000.
"Speculative bubbles and crashes in stock market: an interacting-agent model of speculative activity,"
- Kaizoji, Taisei, 2000. "Speculative bubbles and crashes in stock markets: an interacting-agent model of speculative activity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 493-506.
- Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
- Lux, Thomas, 1998. "The socio-economic dynamics of speculative markets: interacting agents, chaos, and the fat tails of return distributions," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 143-165, January.
- Takayama,Akira, 1985. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521314985, November.
- Alan Kirman, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 137-156.
- Alfarano, Simone & Milakovic, Mishael, 2009. "Network structure and N-dependence in agent-based herding models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 78-92, January.
- Cont, Rama & Bouchaud, Jean-Philipe, 2000. "Herd Behavior And Aggregate Fluctuations In Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 4(02), pages 170-196, June.
- Follmer, Hans & Horst, Ulrich & Kirman, Alan, 2005. "Equilibria in financial markets with heterogeneous agents: a probabilistic perspective," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 123-155, February.
- Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:388:y:2009:i:19:p:4126-4144. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.