Evolutionary dynamics in financial markets with many trader types

W.A. Brock, C.H. Hommes and F.O.O. Wagener
Authors registered in the RePEc Author Service: William A. Brock, Florian Oskar Ottokar Wagener and Cars Hommes

No 119, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: This paper develops the notion of a Large Type Limit (LTL) describing the average behavior of adaptive evolutionary systems with many trader types. It is shown that generic and persistent features of adaptive evolutionary systems with many trader types are well described by the large type limit. Stability and bifurcation routes to instability and strange attractors are studied. An increase in the "intensity of adaption" or in the diversity of beliefs may lead to deviations from the RE fundamental benchmark and excess volatility. Simple examples of LTL are able to generate important stylized facts, such as volatility clustering and long memory, observed in real financial data.

Keywords: evolutionary adaptive systems; heterogeneous agents; bounded rationality; nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: D84 E32 G12 (search for similar items in EconPapers)
Date: 2001-04-01
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Evolutionary Dynamics in Financial Markets With Many Trader Types (2001)
Working Paper: Evolutionary dynamics in financial markets with many trader types (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf1:119

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