Learning to forecast, risk aversion, and microstructural aspects of financial stability

Alessio Emanuele Biondo

No 2017-104, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas risk aversion can, counterintuitively, have perverse consequences on it.

Keywords: order book; learning to Forecast; risk aversion; agent based models (search for similar items in EconPapers)
JEL-codes: C63 E44 E47 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mac and nep-upt
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https://www.econstor.eu/bitstream/10419/171971/1/1006696598.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:2017104

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