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The Dynamics of the Linear Random Farmer Model

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  • Rui Carvalho

Abstract

On the framework of the Linear Farmer's Model, we approach the indeterminacy of agents' behaviour by associating with each agent an unconditional probability for her to be active at each time step. We show that Pareto tailed returns can appear even if value investors are the only strategies on the market and give a procedure for the determination of the tail exponent. Numerical results indicate that the returns' distribution is heavy tailed and volatility is clustered if trading occurs at the zero Lyapunov (critical) point.

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  • Rui Carvalho, 2001. "The Dynamics of the Linear Random Farmer Model," Papers cond-mat/0107150, arXiv.org.
  • Handle: RePEc:arx:papers:cond-mat/0107150
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    References listed on IDEAS

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    Cited by:

    1. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2001. "Microscopic Models of Financial Markets," Papers cond-mat/0110354, arXiv.org.
    2. Reiner Franke & Toichiro Asada, 2008. "Incorporating positions into asset pricing models with order-based strategies," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 3(2), pages 201-227, December.
    3. Franke, Reiner, 2009. "A prototype model of speculative dynamics with position-based trading," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1134-1158, May.
    4. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.

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