- Asset prices, traders’ behavior and market design
- Journal of Economic Dynamics & Control
- Volume | Issue number
- 33 | 5
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
The dynamics of a financial market with heterogeneous agents are analyzed under different market architectures. We start with a tractable behavioral model under Walrasian market clearing and simulate it under different trading protocols. The key behavioral feature of the model is the switching by agents between simple forecasting rules on the basis of a fitness measure. By analyzing the dynamics under order-driven protocols we show that the behavioral and structural assumptions of the model are closely intertwined. The high responsiveness of agents to a fitness measure causes excess volatility, but the frictions of the order-driven markets may stabilize the dynamics. We also analyze and compare allocative efficiency and time series properties under different protocols.
Keywords: Asset pricing model; Heterogeneous beliefs; Learning; Trading protocols; Market architecture
JEL classification codes: G12; D44; D61; C62
- go to publisher's site
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.