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Imitation In Financial Markets

Author

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  • HARJOAT SINGH BHAMRA

    (Finance PhD Programme, London Business School, Sussex Place, Regent's Park, London, NW 4SA, England, UK)

Abstract

It is believed that trading agents often imitate the behaviour of those around them. In its excessive form this imitation can help lead to large increases or decreases in asset-prices over a small time, often described as bubbles and crashes. In this paper we examine a model in which rational agents repeatedly trade one asset whose price is influenced by supply and demand together with a stochastic noise term. Each agent is able to observe and remember the actions of her nearest neighbours. Furthermore the agents receive private information about the asset-price. We find that profit-maximization implies that agents should to some extent imitate the behaviour of the people around them allowing the use of the Ising Spin Model to investigate agent-agent interactions.

Suggested Citation

  • Harjoat Singh Bhamra, 2000. "Imitation In Financial Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 473-478.
    • Handle: RePEc:wsi:ijtafx:v:03:y:2000:i:03:n:s0219024900000425
    DOI: 10.1142/S0219024900000425
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    Cited by:

    1. Galam, Serge & Walliser, Bernard, 2010. "Ising model versus normal form game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(3), pages 481-489.

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    Keywords

    Interactions; beliefs;

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