News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents

News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents

This paper presents a Heterogeneous Agent Model of a financial market with chartist and fundamentalist traders that exhibit bounded rationality and short-term thinking to explain the effect of under and overreaction to news. The existence of the Market Maker’s finite price adjustment speed and the presence of risk aversion lead to the fact that prices do not adjust instantaneously to new inform...

Financial Markets Equilibrium with Heterogeneous Agents

This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, t...

Modeling Financial Markets with Heterogeneous Agents

Equilibria in Financial Markets with Heterogeneous Agents: A Probabilistic Perspective∗

We analyse financial market models in which agents form their demand for an asset on the basis of their forecasts of future prices and where their forecasting rules may change over time, as a result of the influence of other traders. Agents will switch from one rule to another stochastically, and the price and profits process will reflect these switches. Among the possible rules are “chartist” ...

Intermittent chaos in a model of financial markets with heterogeneous agents

In this paper we study the price dynamics in a simple model of financial markets with heterogeneous agents. We concentrate on how increases in the total number of active traders influences fluctuations of asset prices. We find that a curious route to chaos is observed when the total number of [active traders] increases. Particularly, we show that intermittent chaos [1] of price fluctuations is ...