Resource title

Adaptive beliefs and the volatility of asset prices

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Resource description

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) ; Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

Resource author

Andrea Gaunersdorfer

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Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://epub.wu.ac.at/1250/1/document.pdf

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