Wealth-driven Selection in a Financial Market with Heterogeneous Agents

Mikhail Anufriev and Pietro Dindo

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: We study the co-evolution of asset prices and individual wealth in a financial market populated by an arbitrary number of heterogeneous boundedly rational investors. Using wealth dynamics as a selection device we are able to characterize the long run market outcomes, i.e. asset returns and wealth distributions, for a general class of investment behaviors. Our investigation illustrates that market interaction and wealth dynamics pose certain limits on the outcome of agents' interactions even within the ``wilderness of bounded rationality''. As an application we consider the case of heterogenous mean-variance optimizers and provide insights into the results of the simulation model introduced in Levy, Levy and Solomon (1994).

Keywords: Heterogeneous agents; Asset pricing model; Bounded rationality; CRRA framework; Levy-Levy-Solomon model; Evolutionary Finance. (search for similar items in EconPapers)
Date: 2007-12-19
New Economics Papers: this item is included in nep-ino and nep-knm
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Wealth-driven selection in a financial market with heterogeneous agents (2010)
Working Paper: Wealth-driven Selection in a Financial Market with Heterogeneous Agents (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2007/27

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