Ergodic fluctuations in a stock market model with interacting agents: The mean field case

Ulrich Horst

No 1999,106, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: We consider a financial market model with interacting agents and study the long run behaviour of both aggregate behaviour and equilibrium prices. Investors are heterogeneous in their price expectations and they get stochastic signals about the mood of the market described by the empirical distributions of the agents' characteristics. We give sufficient conditions for the distribution of equilibrium prices to converge to a unique equilibrium, and we study the asymptotic dynamics of individual expectations. Simulations show that these dynamics may exhibit large and sudden fluctuations which are not due to rational adjustments to new market information but to a distinct herd behaviour.

Keywords: random systems with complete connections; interacting Markov processes; mean-field models (search for similar items in EconPapers)
Date: 1999
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