Heterogeneous Expectations with Multiple Risky Assets

Riccardo Sommariva and Paolo Zeppini
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Riccardo Sommariva: Université Côte d'Azur, CNRS, GREDEG, France
Paolo Zeppini: Université Côte d'Azur, CNRS, GREDEG, France

No 2026-18, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: We extend the heterogeneous agent model of Brock and Hommes (1997, 1998) to a setting with two risky assets. Agents choose between a trend-following rule and a fundamentalist rule using evolutionary switching based on past performance. The expectation rules operate on both assets simultaneously: the forecast for each asset depends on the lagged price deviation of the other, introducing cross-asset expectations as a new channel for endogenous comovement. In the deterministic skeleton we derive the threshold intensity of choice at which the fundamental steady state loses stability and show that cross-asset expectations lower it: the fundamental steady state destabilizes sooner, and the interval of stable non-fundamental dynamics that follows shrinks. In the stochastic system, they amplify the realized correlation far beyond the exogenous baseline: as the intensity of switching approaches the pitchfork threshold the realized correlation approaches one, however weakly the two fundamentals are correlated. This amplification is non-monotonic in the intensity of choice and it operates through the structure of expectations alone.

Keywords: heterogeneous agent model; excess comovement; cross-asset expectations; multi-asset markets; nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: C62 D84 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2026-07
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