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Fundamentalists vs. chartists: Learning and predictor choice dynamics

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  • Michele Berardi

Abstract

In a simple, forward looking univariate model of price determination we investigate the evolution of expectations dynamics in presence of two types of agents: fundamentalists and chartists. In particular, we combine evolutionary selection among heterogeneous classes of models through predictor choice dynamics based on a logit model, with adaptive learning in the form of parameters updating within each class of rules. We find that, for different parameterizations, it can happen that fundamentalists drive chartists completely out of the market or vice-versa, and also that heterogeneous equilibria in which fundamentalists and chartists coexist are possible. Interestingly, though, only equilibria in which fundamentalists outperform chartists turn out to be adaptively learnable by agents.

Suggested Citation

  • Michele Berardi, 2011. "Fundamentalists vs. chartists: Learning and predictor choice dynamics," Post-Print hal-00796301, HAL.
  • Handle: RePEc:hal:journl:hal-00796301
    DOI: 10.1016/j.jedc.2011.01.010
    Note: View the original document on HAL open archive server: https://hal.science/hal-00796301
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    Cited by:

    1. ap Gwilym, Rhys, 2009. "The Monetary Policy Implications of Behavioral Asset Bubbles," Cardiff Economics Working Papers E2009/18, Cardiff University, Cardiff Business School, Economics Section.
    2. Berardi, Michele, 2015. "On the fragility of sunspot equilibria under learning and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 251-265.
    3. Thierry Warin & Aleksandar Stojkov, 2021. "Machine Learning in Finance: A Metadata-Based Systematic Review of the Literature," JRFM, MDPI, vol. 14(7), pages 1-31, July.
    4. Xing Gao & Daniel Ladley, 2022. "Noise trading and market stability," The European Journal of Finance, Taylor & Francis Journals, vol. 28(13-15), pages 1283-1301, October.
    5. Thomas Holtfort, 2019. "From standard to evolutionary finance: a literature survey," Management Review Quarterly, Springer, vol. 69(2), pages 207-232, June.
    6. Rhys ap Gwilym, 2013. "The Monetary Policy Implications of Behavioral Asset Bubbles," Southern Economic Journal, Southern Economic Association, vol. 80(1), pages 252-270, July.
    7. Michele Berardi, 2011. "Heterogeneous sunspots solutions under learning and replicator dynamics," Centre for Growth and Business Cycle Research Discussion Paper Series 160, Economics, The University of Manchester.
    8. Rhys ap Gwilym, 2013. "The Monetary Policy Implications of Behavioral Asset Bubbles," Southern Economic Journal, John Wiley & Sons, vol. 80(1), pages 252-270, July.
    9. repec:wly:soecon:v:80:1:y:2013:p:252-270 is not listed on IDEAS

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    More about this item

    Keywords

    C15; C62; D83; D84; E37; Heterogeneity;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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