A financial market model with confirmation bias

Alessia Cafferata and Fabio Tramontana

Structural Change and Economic Dynamics, 2019, vol. 51, issue C, 252-259

Abstract: We develop a financial market model with heterogeneous agents who can be affected by confirmation bias. In particular we consider optimistic and pessimistic agents who adjust their beliefs giving more attention and consideration to evidences supporting their prior beliefs. These kinds of traders coexist with fundamentalists and chartists. We show that this psychological bias makes beliefs more and more distant as time passes, and permits to better explain some important stylized facts of financial markets.

Keywords: Financial markets; Heterogeneous agents; Piecewise-defined maps; Monte Carlo simulations (search for similar items in EconPapers)
JEL-codes: C61 D83 D84 D91 G12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:51:y:2019:i:c:p:252-259

DOI: 10.1016/j.strueco.2019.08.004

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