An asset pricing model with adaptive heterogeneous agents and wealth effects

Carl Chiarella; Xue Zhong He

doi:10.1007/3-540-27296-8_18

An asset pricing model with adaptive heterogeneous agents and wealth effects

Carl Chiarella^*, Xue Zhong He

^*Corresponding author for this work

University of Technology Sydney

Research output: Chapter in Book or Report/Conference proceeding › Conference Proceeding › peer-review

4 Citations (Scopus)

Abstract

The characterisation of agents' preferences by decreasing absolute risk aversion (DARA) and constant relative risk aversion (CRRA) are well documented in the literature and also supported in both empirical and experimental studies. This paper considers a financial market with heterogeneous agents having power utility functions, which are the only utility functions displaying both DARA and CRRA. By introducing a population weighted average wealth measure, we develop an adaptive model to characterise asset price dynamics as well as the evolution of population proportions and wealth dynamics. Some numerical simulations are included to illustrate the evolution of the wealth dynamics, market behaviour and market efficiency within the framework of heterogeneous agents.

Original language	English
Title of host publication	Nonlinear Dynamics and Heterogeneous Interacting Agents
Editors	Thomas Lux, Eleni Samanidou, Stefan Reitz
Pages	269-285
Number of pages	17
DOIs	https://doi.org/10.1007/3-540-27296-8_18
Publication status	Published - 2005
Externally published	Yes

Publication series

Name	Lecture Notes in Economics and Mathematical Systems
Volume	550
ISSN (Print)	0075-8442

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10.1007/3-540-27296-8_18

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title = "An asset pricing model with adaptive heterogeneous agents and wealth effects",

abstract = "The characterisation of agents' preferences by decreasing absolute risk aversion (DARA) and constant relative risk aversion (CRRA) are well documented in the literature and also supported in both empirical and experimental studies. This paper considers a financial market with heterogeneous agents having power utility functions, which are the only utility functions displaying both DARA and CRRA. By introducing a population weighted average wealth measure, we develop an adaptive model to characterise asset price dynamics as well as the evolution of population proportions and wealth dynamics. Some numerical simulations are included to illustrate the evolution of the wealth dynamics, market behaviour and market efficiency within the framework of heterogeneous agents.",

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An asset pricing model with adaptive heterogeneous agents and wealth effects. / Chiarella, Carl; He, Xue Zhong.
Nonlinear Dynamics and Heterogeneous Interacting Agents. ed. / Thomas Lux; Eleni Samanidou; Stefan Reitz. 2005. p. 269-285 (Lecture Notes in Economics and Mathematical Systems; Vol. 550).

Research output: Chapter in Book or Report/Conference proceeding › Conference Proceeding › peer-review

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An asset pricing model with adaptive heterogeneous agents and wealth effects

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