Putting it Altogether — An Evolutionary Model of the Marketplace

Bartholomew Frederick Dowling

Chapter 5 in Evolutionary Finance, 2005, pp 118-160 from Palgrave Macmillan

Abstract: Abstract Building an evolutionary model of the marketplace is not an easy task. Those familiar with intertemporal modeling and high level calculus will immediately recognize the potentially intractable problem presented by our foundation assumption that there is a less than perfect distribution of information (including knowledge) across investors. If we assume investors are imperfectly informed — as is necessary for analyst research output to have any real value — then we run the risk of violating the all-important transversality conditions that are necessary for a general equilibrium “closure” to a continuous form infinite horizon model where there is a finite number of economic agents.1 We therefore could be forced down the path of using a much simpler (discrete) overlapping generations (OLG) type of framework which while appealing, is certainly not as elegant as its more sophisticated continuous form cousin. That said, an OLG model does have its uses too — especially when one wishes to look at the analyst community’s contribution to (and responses from) the presence of speculative bubbles. Decisions, decisions — which framework to choose? We opted for the easy way out and decided to present both types of modeling framework within the body of this book.

Keywords: Asset Price; Evolutionary Finance; Market Index; Trading Rule; Market Sentiment (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50219-2_5

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DOI: 10.1057/9780230502192_5

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