Financial price fluctuations in a stock market model with many interacting agents

Ulrich Horst

Economic Theory, 2005, vol. 25, issue 4, 917-932

Abstract: We consider a financial market model with a large number of interacting agents. Investors are heterogeneous in their expectations about the future evolution of an asset price process. Their current expectation is based on the previous states of their “neighbors” and on a random signal about the “mood of the market.” We analyze the asymptotics of both aggregate behavior and asset prices. We give sufficient conditions for the distribution of equilibrium prices to converge to a unique equilibrium, and provide a microeconomic foundation for the use of diffusion models in the analysis of financial price fluctuations. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Agent-based modelling; Diffusion models for financial markets; Contagion effects; bubbles and crashes. (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (35)

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Working Paper: Financial price fluctuations in a stock market model with many interacting agents (2001)
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DOI: 10.1007/s00199-004-0500-x

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