NDLI: Asset Price Dynamics When Behavioural Heterogeneity Varies

Content Provider	Springer Nature Link
Author	Colucci, Domenico Valori, Vincenzo
Copyright Year	2008
Abstract	We build a model in which asset prices are expectationally driven and agents forecast future prices hinging on a combination of fundamental value, trend and inertia. The model has a unique steady state and we investigate its stability. In particular the amount of behavioural heterogeneity in the model is given by the number of intermediaries actually operating in the market: we are concerned with the effects that changing such number produces on the steady state in terms of stability. Assuming that the set of relevant intermediaries is sampled randomly we discuss the probability of having stability as a function of the market’s parameters and the number of such agents. Our simulations show that stability in the multi-agent setting does not require that conditions for stability in the representative agent case be met for every individual; so stability can arise even if some of the agents would not be compatible with it if they were the only ones operating in the market. The same goes for instability. Further, we find that stabilising (or destabilising) effects of heterogeneity are not uniform across the market’s essential characteristics, as captured by a given structural parameter: in fact we can identify a parametric region in which heterogeneity is stabilising and another in which it is destabilising.
Starting Page	3
Ending Page	20
Page Count	18
File Format	PDF
ISSN	09277099
Journal	Computational Economics
Volume Number	32
Issue Number	1-2
e-ISSN	15729974
Language	English
Publisher	Springer US
Publisher Date	2008-04-22
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Heterogeneous agents Expectations Stock market Behavioural finance Bounded rationality Middlemen Economic Theory
Content Type	Text
Resource Type	Article
Subject	Economics, Econometrics and Finance Computer Science Applications

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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