Wealth-driven selection in a financial market with heterogeneous agents

Anufriev, Mikhail; Dindo, Pietro

doi:10.1016/j.jebo.2009.11.006

Cited by 40 publications

(31 citation statements)

References 33 publications

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“…The reason is that we are going to work exclusively with local stability conditions so that a trader may survive on a given trajectory (i.e., for certain initial conditions) but vanish on another. A similar definition is given in Blume and Easley (1992) for a stochastic system like ours and in Anufriev and Bottazzi (2010) and Anufriev and Dindo (2010) for deterministic systems.…”

Section: The Modelmentioning

confidence: 88%

“…Both gaps have been partially filled by our previous works, see e.g. Anufriev and Bottazzi (2010), Anufriev et al (2006) or Anufriev and Dindo (2010), which study wealth-driven market selection on the general class of price dependent investment rules. Nevertheless, those works, being based on an essentially deterministic framework, do not tackle the information efficiency issue we are interested here.…”

Section: Introductionmentioning

confidence: 99%

“…No matter the shape of the investment rules, both single survivor and multiple survivors equilibria lie on the diagonal of the plot with coordinates α(p) and p. For analogies with previous works (Anufriev et al, 2006;Anufriev and Bottazzi, 2010;Anufriev and Dindo, 2010) we name it the "Equilibrium Market Curve" (EMC) to stress that it is the locus of all long-run market equilibria.…”

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confidence: 99%

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Evolution and market behavior with endogenous investment rules

Bottazzi

Dindo

2014

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In a complete market for short-lived assets, we investigate long run wealth-driven selection on a general class of investment rules that depend on endogenously determined current and past prices. We find that market instability, leading to asset mis-pricing and informational efficiencies, is a common phenomenon and is due to two different mechanisms. First, conditioning investment decisions on asset prices implies that dominance of an investment rule on others, as measured by the relative entropy, can be different at different prevailing prices thus reducing the global selective capability of the market. Second, the feedback existing between past realized prices and current investment decisions can lead to a form of deterministic overshooting. By investigating the random dynamical system that describes the price and wealth dynamics, we are able to derive general conditions for the occurrence of each type of market instability and the emergence of informational inefficiencies. Terms of use: Documents in

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Section: The Modelmentioning

confidence: 88%

Section: Introductionmentioning

confidence: 99%

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confidence: 99%

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Evolution and market behavior with endogenous investment rules

Bottazzi

Dindo

2014

Journal of Economic Dynamics and Control

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“…In our model this shortcoming is eliminated by letting the payoffs of all the risky assets grow (or decline) with the aggregate wealth in the economy. In models closely related to the above agent-based models, Anufriev and Dindo (2010) study the wealth dynamics when dividends grow at an exogenous rate. Chiarella and He (2001) and Anufriev and Bottazzi (2010) consider related models in which dividends grow at an endogenous rate, entailing constant dividend yields.…”

Section: Introductionmentioning

confidence: 99%

Local stability analysis of a stochastic evolutionary financial market model with a risk-free asset

2011

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This paper introduces and analyzes an evolutionary model of a financial marketwith a risk-free asset. Focus is on the study of local stability of the wealth dynamics through the application of recent results on the linearization and stability of random dynamical systems (Evstigneev et al. Proc Am Math Soc 139:1061-1072. Conditions are derived for the linearization of the model at an equilibrium state which ensure local convergence of sample paths to this equilibrium. The paper also shows that the concept of local stability is closely related to the notion of evolutionary stability. A locally evolutionarily stable investmentstrategy in the evolutionary model with a risk-free asset is derived, extending previousresearch. The method illustrated here is applicable for the analysis of manifold economic and financial dynamic models involving randomness. Conditions are derived for the linearization of the model at an equilibrium state which ensure local convergence of sample paths to this equilibrium. The paper also shows that concept of local stability is closely related to the notion of evolutionary stability. A locally evolutionarily stable investment strategy in the evolutionary model with a risk-free asset is derived, extending previous research. Our analysis can serve as an illustration of a mathematically correct approach to the study of local stability in stochastic systems. The method will be useful in the study of other economic and financial dynamic models involving randomness.JEL classification: G11, G12.

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“…5 Other papers have considered heterogeneous gain learning. These include Anufriev & Dindo (2010), Honkapohja & Mitra (2006), Levy, Levy & Solomon (1994), Mitra (2005), Thurner, Dockner &Gaunersdorfer (2002), andZschischang &Lux (2001). LeBaron (2002) considers the ecological battle between learners with differing perspectives, and how short term learning perspectives can survive by creating an environment in which they thrive.…”

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confidence: 99%

Heterogeneous Agents and Long Horizon Features of Asset Prices

LeBaron

2013

SSRN Journal

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Heterogeneous agent models for financial markets have provided explanations for many empirical regularities of relatively high frequency (hourly/daily) financial time series. They have been much quieter when it comes to longer range features. This paper examines a simplified computational heterogeneous agent model in the context of various longer range time series properties for equity returns. The model is compared to a specially created long range data set, and is found to perform well in terms of replicating features, and even revealing some aspects of the data that have not been well quantified to date. By matching empirical properties at both short and long horizons this sets a higher standard in terms of validation which this model is able to match.

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Wealth-driven selection in a financial market with heterogeneous agents

Cited by 40 publications

References 33 publications

Evolution and market behavior with endogenous investment rules

Evolution and market behavior with endogenous investment rules

Local stability analysis of a stochastic evolutionary financial market model with a risk-free asset

Heterogeneous Agents and Long Horizon Features of Asset Prices

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