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Heterogeneous Gain Learning and the Dynamics of Asset Prices

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  • Blake LeBaron

    () (International Business School, Brandeis University)

Abstract

This paper presents a new agent-based financial market. It is designed to be both simple enough to gain insights into the nature and structure of what is going on at both the agent and macro levels, but remain rich enough to allow for many interesting evolutionary experiments. The model is driven by heterogeneous agents who put varying weights on past information as they design portfolio strategies. It faithfully generates many of the common stylized features of asset markets. It also yields some insights into the dynamics of agent strategies and how they yield market instabilities.

Suggested Citation

  • Blake LeBaron, 2010. "Heterogeneous Gain Learning and the Dynamics of Asset Prices," Working Papers 29, Brandeis University, Department of Economics and International Businesss School, revised Dec 2010.
  • Handle: RePEc:brd:wpaper:29
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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP29.pdf
    File Function: Revised version, 2010
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Mark Setterfield & Bill Gibson, 2013. "Real and financial crises: A multi-agent approach," Working Papers 1309, Trinity College, Department of Economics, revised Jul 2014.
    2. repec:eee:dyncon:v:80:y:2017:i:c:p:34-53 is not listed on IDEAS
    3. Christoph Aymanns & J. Doyne Farmer, 2014. "The dynamics of the leverage cycle," Papers 1407.5305, arXiv.org, revised Aug 2014.
    4. Aymanns, Christoph & Farmer, J. Doyne, 2015. "The dynamics of the leverage cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 50(C), pages 155-179.
    5. Andreas Fuster & Benjamin Hebert & David Laibson, 2012. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 1-48.
    6. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0504-x is not listed on IDEAS
    7. Schmitt, Noemi & Westerhoff, Frank, 2017. "On the bimodality of the distribution of the S&P 500's distortion: Empirical evidence and theoretical explanations," Journal of Economic Dynamics and Control, Elsevier, vol. 80(C), pages 34-53.
    8. Pyo, Dong-Jin, 2014. "A Multi-Factor Model of Heterogeneous Traders in a Dynamic Stock Market," Staff General Research Papers Archive 37358, Iowa State University, Department of Economics.
    9. Saroj Bhattarai & Gauti B. Eggertsson & Raphael Schoenle, 2012. "Is increased price flexibility stabilizing? Redux," Staff Reports 540, Federal Reserve Bank of New York.
    10. Georges, Christophre, 2015. "Risk preference and stability under learning," Economics Letters, Elsevier, vol. 132(C), pages 105-108.
    11. Doris Neuberger & Roger Rissi, 2014. "Macroprudential Banking Regulation: Does One Size Fit All?," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(1), pages 5-28, May.
    12. Noemi Schmitt & Frank Westerhoff, 2017. "Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1041-1070, November.
    13. Pyo, Dong-Jin, 2015. "Animal spirits and stock market dynamics," ISU General Staff Papers 201501010800005596, Iowa State University, Department of Economics.
    14. Andrea Giusto, 2015. "Learning to Agree: A New Perspective on Price Drift," Economics Bulletin, AccessEcon, vol. 35(1), pages 276-282.
    15. Blake LeBaron, 2011. "Active and Passive Learning in Agent-based Financial Markets," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 37(1), pages 35-43.

    More about this item

    Keywords

    Learning; Asset Pricing; Financial Time Series; Evolution; Memory;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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