Heterogeneous Investment Horizons in a Simple Asset Pricing Model
In this paper we study the dynamics of a simple asset pricing model describing the trading activity of heterogeneous agents in a ''stylized'' market. The economy in the model contains two assets: a bond with risk-less return and a dividend paying security. The price of the security is determined through Walrasian mechanism. Traders are speculators described as expected utility maximizers with heterogeneous beliefs about future prices and with heterogeneous estimation of risk. In particular, we consider traders who base their investment decision on different time horizons and we analyze the effect of these differences on the price dynamics. Under suitable parameterization, the stock no-arbitrage ``fundamental'' price can emerge as a stable fixed point of the model dynamics. For different parameterizations, however, the market shows cyclical or chaotic price dynamics with speculative bubbles and crashes. We find that the sole heterogeneity of agents with respect to their time horizons is not enough to guarantee the instability of the fundamental price and the emergence of non-trivial price dynamics. However, if different groups of agents are characterized by different trading behaviors, the introduction of heterogeneous investment horizons can decrease the stability region of the ``fundamental'' fixed point. The role of time horizons results different for different trade behaviors and, in general, depends on the whole ecology of agents' beliefs.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/Email: |
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:209. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.