Verbic, Miroslav (2006): Memory and Asset Pricing Models with Heterogeneous Beliefs.

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Abstract
The paper discusses the role of memory in asset pricing models with heterogeneous beliefs. In particular, we were interested in how memory in the fitness measure affects stability of evolutionary adaptive systems and survival of technical trading. In order to obtain an insight into this matter two cases were analyzed; a twotype case of fundamentalists versus contrarians and a threetype case of fundamentalists versus opposite biases. It has been established that increasing memory strength has a stabilizing effect on dynamics, though it is not able to eliminate speculative traders’ shortrun profit seeking behaviour from the market. Furthermore, opposite biases do not seem to lead to chaotic dynamics, even when there are no costs for fundamentalists. Apparently some (strong) trend extrapolator beliefs are needed in order to trigger chaotic asset price fluctuations.
Item Type:  MPRA Paper 

Institution:  Universiteit van Amsterdam 
Original Title:  Memory and Asset Pricing Models with Heterogeneous Beliefs 
Language:  English 
Keywords:  asset pricing; biased beliefs; contrarians; fitness measure; fundamentalists; heterogeneous beliefs; memory strength; stability 
Subjects:  G  Financial Economics > G1  General Financial Markets > G12  Asset Pricing; Trading volume; Bond Interest Rates E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations; Cycles C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods C  Mathematical and Quantitative Methods > C6  Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C62  Existence and Stability Conditions of Equilibrium C  Mathematical and Quantitative Methods > C6  Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61  Optimization Techniques; Programming Models; Dynamic Analysis 
Item ID:  1261 
Depositing User:  Miroslav Verbic 
Date Deposited:  28. Dec 2006 
Last Modified:  14. Feb 2013 21:18 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/1261 