Adaptive beliefs and the volatility of asset prices

Andrea Gaunersdorfer

Publication: Working/Discussion PaperWU Working Paper

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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)
Original languageEnglish
Place of PublicationVienna
PublisherSFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business
Publication statusPublished - 2000

Publication series

NameWorking Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"
No.74

WU Working Paper Series

  • Working Papers SFB \Adaptive Information Systems and Modelling in Economics and Management Science\

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