Price and Wealth Dynamics in a Speculative Market with Generic Procedurally Rational Traders
An agent-based model of a simple financial market with arbitrary number of traders having relatively general behavioral specifications is analyzed. In a pure exchange economy with two assets, riskless and risky, trading takes place in discrete time under endogenous price formation setting. Traders' demands for the risky asset are expressed as fractions of their individual wealths, so that the dynamical system in terms of wealth and return is obtained. Agents' choices, i.e. investment fractions, are described by means of the generic smooth functions of an infinite information set. The choices can be consistent with (but not limited to) the solutions of the expected utility maximization problems. A complete characterization of equilibria is given. It is shown that irrespectively of the number of agents and of their behavior, all possible equilibria belong to a one-dimensional "Equilibrium Market Line". This geometric tool helps to illustrate possibility of different phenomena, like multiple equilibria, and also can be used for comparative static analysis. The stability conditions of equilibria are derived for general model specification and allow to discuss the relative performances of different strategies and the selection principle governing market dynamics.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)24 76524118
Fax: +44 (0)24 76524167
Web page: http://web.warwick.ac.uk/fac/soc/financeRepec/
More information through EDIRC
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.:
- Anufriev, Mikhail & Bottazzi, Giulio & Pancotto, Francesca, 2006. "Equilibria, stability and asymptotic dominance in a speculative market with heterogeneous traders," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1787-1835.
- Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2006.
"Asset price and wealth dynamics in a financial market with heterogeneous agents,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 30(9-10), pages 1755-1786.
- Carl Chiarella & Roberto Dieci, 2004. "Asset price and wealth dynamics in a financial market with heterogeneous agents," Computing in Economics and Finance 2004 261, Society for Computational Economics.
- Carl Chiarella & Roberto Dieci & Laura Gardini, 2004. "Asset Price and Wealth Dynamics in a Financial Market with Heterogeneous Agents," Research Paper Series 134, Quantitative Finance Research Centre, University of Technology, Sydney.
- Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, March.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
- Levy, Moshe & Levy, Haim & Solomon, Sorin, 1994. "A microscopic model of the stock market : Cycles, booms, and crashes," Economics Letters, Elsevier, vol. 45(1), pages 103-111, May.
- Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, vol. 68(6), pages 1303-1342, November.
- 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.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Zschischang, Elmar & Lux, Thomas, 2001. "Some new results on the Levy, Levy and Solomon microscopic stock market model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 291(1), pages 563-573.
When requesting a correction, please mention this item's handle: RePEc:wbs:wpaper:wp06-02. 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: (Rong Leng)
If references are entirely missing, you can add them using this form.