Noisy Trading in the Large Market Limit

Mikhail Anufriev and Giulio Bottazzi

A chapter in Artificial Economics, 2006, pp 137-145 from Springer

Abstract: Summary This paper analyzes to what extent and how the trading activity of a group of heterogeneous agents can be described, in the aggregate, as the result of the investment decision of a single “representative” agent. We consider a two-asset pure exchange economy populated by CRRA traders whose individual demands are functions of the past market history. If individual choices are expressed as noisy versions of a common behavior, and the number of agents is large, one can consider the Large Market Limit of the economy and reduce the model to a low-dimensional stochastic system. We investigate the goodness of this approximation under different market conditions and different agents ecologies. The results of the analysis can be used in the study of the general case with an arbitrary number of heterogeneous agents.

Keywords: Risky Asset; Representative Agent; Dividend Yield; Heterogeneous Agent; Constant Relative Risk Aversion (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-540-28547-2_12

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DOI: 10.1007/3-540-28547-4_12

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