Overconfidence and Market Efficiency with Heterogeneous Agents

Endogenous Market Segmentation With Heterogeneous Agents

An explanation is provided for the evolution of segmented marketplaces in a pairwise exchange economy. Large traders operating in a pairwise exchange market prefer to meet other similar traders, because this enables them to trade their endowments in a smaller number of encounters. Large and small traders, however, cannot be distinguished a priori, and the existence of the small traders imposes ...

The Market for Overconfidence

The Efficiency of an Artificial Stock Market with Heterogeneous Intelligent Agents

In this paper, we construct an artificial equity market using an Artificial Neural Network (ANN). Based on the heterogeneous beliefs and trading strategies prevailing in actual equity markets, we divide traders into three groups: value traders, momentum traders and noise traders. Characteristically, value traders are endowed with an ANN learning mechanism that allows them to forecast the divide...

A Test for Overconfidence with Market Data

Overconfidence refers to the exaggerated beliefs that one might have about his own personal abilities. This phenomenon seems to be pervasive and it could help explaining several economic paradoxes. Still the profession has failed to produce conclusive evidence about overconfident behavior using market data. Most of the evidence that shows that people are overconfident comes from either psycholo...

Economic Fluctuations in a Labor Market with Heterogeneous Agents