An Adaptive Model of Asset Price and Wealth Dynamics in a Market with Heterogeneous Trading Strategies

Carl Chiarella and Xuezhong (Tony) He ()

Chapter 20 in Handbook on Information Technology in Finance, 2008, pp 465-499 from Springer

Abstract: Abstract The traditional asset-pricing models – such as the capital asset pricing model (CAPM) of [42] and [34], the arbitrage pricing theory (APT) of [40], or the intertemporal capital asset pricing model (ICAPM) of [38] – have as one of their important assumptions, investor homogeneity. In particular the paradigm of the representative agent assumes that all agents are homogeneous with regard to their preferences, their expectations and their investment strategies.1 However, as already argued by Keynes in the 1930s, agents do not have sufficient knowledge of the structure of the economy to form correct mathematical expectations that would be held by all agents.

Keywords: Asset Price; Trading Strategy; Risky Asset; Capital Asset Price Model; Adaptive Model (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:spr:ihichp:978-3-540-49487-4_20

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DOI: 10.1007/978-3-540-49487-4_20

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