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.
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.:
- 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.
- 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.
- 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.
- 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.
- 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.
- repec:att:wimass:9111 is not listed on IDEAS
- 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.
- 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.
- 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.
- Hans Föllmer & Martin Schweizer, 1993. "A Microeconomic Approach to Diffusion Models For Stock Prices," Mathematical Finance, Wiley Blackwell, vol. 3(1), pages 1-23.
- 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, vol. 25(4), pages 917-932, 06.
- Enrico Scalas & Taisei Kaizoji & Michael Kirchler & Juergen Huber & Alessandra Tedeschi, 2006.
"Waiting times between orders and trades in double-auction markets,"
- 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.
- Weisbuch, Gérard & Stauffer, Dietrich, 2003. "Adjustment and social choice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 651-662.
- 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, 2001.
"From Minority Games to real markets,"
Taylor & Francis Journals, vol. 1(1), pages 168-176.
- 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.
- 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.
- Edward L. Glaeser & Jose Scheinkman, 2000.
NBER Working Papers
8053, National Bureau of Economic Research, Inc.
- Edward L. Glaeser & Jose A. Scheinkman, 2001. "Non-Market Interactions," Harvard Institute of Economic Research Working Papers 1914, Harvard - Institute of Economic Research.
- Lux, T. & M. Marchesi, . "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
- 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.
- Tesfatsion, Leigh & Judd, Kenneth L., 2006. "Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics," Staff General Research Papers 10368, Iowa State University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:0801.0003. 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: (arXiv administrators)
If references are entirely missing, you can add them using this form.