The financial intermediation sector is important not only for channeling resources from agents in excess of funds to agents in need of funds (credit channel). They also facilitate the creation of financial assets that can be used for insurance purposes. Then, when the financial sector experiences difficulties that prevent them from creating these assets, agents in the economy (being them househ...

We develop a methodology to extract a quantitative model for behavioral effects in markets from empirical data. A set of 24 asset market experiments are utilized to derive an equation of price and its dependence on momentum, fundamental value, excess bid level and liquidity considerations. A difference equation is derived from a statistical analysis of the data. The methods are quite general an...

We investigate the effects of a Financial Transaction Tax (FTT) in an order-driven artificial financial market. FTTs are meant to limit short-term speculative behavior by reducing the amount of excess liquidity in the system. To quantify these effects, adjustments in trading strategies and their effects on liquidity need to be taken into account. We model an agentbased continuous double-auction...

We study endogenous currency substitution in a decentralized trade environment. Sellers maximize profits from sales of imperfectly substitutable goods by posting prices in either one of two currencies. A unique symmetric equilibrium exists where goods are priced only in the local currency. This occurs if foreign trade is sporadic, there is sufficient but not excessive liquidity, and discounting...

We investigate the effects of a Financial Transaction Tax (FTT) in an order-driven artificial financial market. FTTs are meant to limit short-term speculative behavior by reducing the amount of excess liquidity in the system. To quantify these effects, adjustments in trading strategies and their effects on liquidity need to be taken into account. We model an agentbased continuous double-auction...

This paper proposes a theory of excess price fluctuations in over-the-counter secondary markets. When heterogeneous assets trade under asymmetric information, quality effect emerges: high liquidity lowers the pool sellers and decreases future liquidity. Cyclical equilibria can arise even without fundamental shocks. In cycle, investors speculate by bidding up low-quality assets, anticipating res...

Why do asset prices move so frequently and why is the volatility so high? Why do prices move at all? This is obviously a fundamental question in theoretical economics and quantitative finance that encompasses other, related issues: what is the information reflected by prices, and to what extent do market prices reflect the underlying economic reality? Do we understand the origin of crises and c...