Asset Price Dynamics with Local Interactions under Heterogeneous Beliefs
This paper investigates the effect of network structure on the asset price dynamics. We propose a simple present value discounted asset pricing model with heterogeneous agents. Every period the agents choose a predictor of the future price on the basis of past performance of their own and alternative strategies and form their demands for a risky asset. The information about the performance of an alternative strategy is available only locally from the directly connected agents. Using the rewiring procedure we produce four types of commonly considered networks: a fully connected network, a regular lattice, a small world, and a random network. The results show that the network structure influences asset price dynamics in terms of the region of stability and volatility. This is mostly due to the different speed of information transmission in the different networks.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
Web page: http://www.fee.uva.nl/cendef/
More information through EDIRC
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.:
- Hommes, Cars & Huang, Hai & Wang, Duo, 2005. "A robust rational route to randomness in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 1043-1072, June.
- Florian Wagener & Cars Hommes & William Brock, 2006.
"More hedging instruments may destabilize markets,"
wp06-11, Warwick Business School, Finance Group.
- William Brock & Cars Hommes & Florian Wagener, 2006. "More Hedging Instruments may destablize Markets," Tinbergen Institute Discussion Papers 06-080/1, Tinbergen Institute, revised 30 Apr 2008.
- Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2006. "More hedging instruments may destabilize markets," CeNDEF Working Papers 06-12, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2002.
"Evolutionary dynamics in markets with many trader types,"
CeNDEF Working Papers
02-10, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
- Duffy, John, 2001. "Learning to speculate: Experiments with artificial and real agents," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 295-319, March.
- Chen, Shu-Heng & Yeh, Chia-Hsuan, 2001. "Evolving traders and the business school with genetic programming: A new architecture of the agent-based artificial stock market," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 363-393, March.
- Day, R. & Huang, W., 1988.
"Bulls, Bears And Market Sheep,"
m8822, Southern California - Department of Economics.
- Hommes, C.H., 2001. "Modeling the stylized facts in finance through simple nonlinear adaptive systems," CeNDEF Working Papers 01-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- Gode, Dhananjay K & Sunder, Shyam, 1997. "What Makes Markets Allocationally Efficient?," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 603-30, May.
- Ehrentreich, Norman, 2006. "Technical trading in the Santa Fe Institute Artificial Stock Market revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 599-616, December.
- Chen, Shu-Heng & Lux, Thomas & Marchesi, Michele, 2001.
"Testing for non-linear structure in an artificial financial market,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 46(3), pages 327-342, November.
- Shu-Heng Chen & Thomas Lux & Michele Marchesi, 1999. "Testing for Non-Linear Structure in an Artificial Financial Market," Discussion Paper Serie B 447, University of Bonn, Germany.
- Piergiuseppe Morone & Richard Taylor, 2004. "Knowledge diffusion dynamics and network properties of face-to-face interactions," Journal of Evolutionary Economics, Springer, vol. 14(3), pages 327-351, 07.
- Bottazzi, Giulio & Dosi, Giovanni & Rebesco, Igor, 2005. "Institutional architectures and behavioral ecologies in the dynamics of financial markets," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 197-228, February.
- Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
- 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.
- Mikhail Anufriev & Giulio Bottazzi, 2004. "Asset Pricing Model with Heterogeneous Investment Horizons," LEM Papers Series 2004/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
When requesting a correction, please mention this item's handle: RePEc:ams:ndfwpp:10-02. 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: (Cees C.G. Diks)
If references are entirely missing, you can add them using this form.