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Adaptive beliefs and the volatility of asset prices

Gaunersdorfer, Andrea (2000) Adaptive beliefs and the volatility of asset prices. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 74. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

I present a simple model of an evolutionary financial market with heterogeneous agents, based on the concept of adaptive belief systems introduced by Brock and Hommes (1997a). Agents choose between different forecast rules based on past performance, resulting in an evolutionary dynamics across predictor choice coupled to the equilibrium dynamics. The model generates endogenous price fluctuations with similar statistical properties as those observed in real return data, such as fat tails and volatility clustering. These similarities are demonstrated for data from the British, German, and Austrian stock market. (author's abstract)

Item Type: Paper
Keywords: heterogeneous expectations / bounded rationality / evolutionary learning / adaptive dynamics / endogenous price fluctuations in financial markets / bifurcation and chaos
Divisions: Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Marketing > Service Marketing und Tourismus
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Depositing User: Repository Administrator
Date Deposited: 30 Jan 2002 15:41
Last Modified: 14 Sep 2010 23:54
URI: http://epub.wu.ac.at/id/eprint/1250

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