TY - JOUR
T1 - Heterogeneous expectations and speculative behavior in a dynamic multi-asset framework
AU - Chiarella, Carl
AU - Dieci, Roberto
AU - He, Xue Zhong
N1 - Funding Information:
The authors wish to acknowledge the insightful comments of the referees that helped to clear up some confusing points in the original draft of this paper. The usual caveat applies. C. Chiarella and X.-Z. He acknowledge financial support from the ARC Discovery Project DP0450526. R. Dieci acknowledges financial support from MIUR, Italy, within the scope of the national research project “Nonlinear Models in Economics and Finance: Complex Dynamics, Disequilibrium, Strategic Interaction”. The authors also gratefully acknowledge financial support from Chuo University (Joint Research Project 0382), the Department of Economics and the Japan Ministry of Education, Culture, Sports, Science and Technology (Grand-in-Aid for Scientific Research (A) 16203019 and (B) 15330037), and wish to thank the participants to the Third International Conference on Nonlinear Economic Dynamics, Tokyo, 2004.
PY - 2007/3
Y1 - 2007/3
N2 - This paper develops a dynamic model of a financial market where heterogeneous agents invest among multiple risky assets and a risk-free asset, under a market maker scenario. Particular attention is paid to the case of two risky assets and two agent types, fundamentalists and trend chasers, whose beliefs on both first and second moments of the conditional distribution of returns are based on past observations. Conditions for the stability of the "fundamental" equilibrium are established and the effect of the correlation between the risky assets is examined. It turns out that investors' anticipated correlation and dynamic portfolio diversification do not always have a stabilizing role, but rather may act as a source of complexity in the financial market.
AB - This paper develops a dynamic model of a financial market where heterogeneous agents invest among multiple risky assets and a risk-free asset, under a market maker scenario. Particular attention is paid to the case of two risky assets and two agent types, fundamentalists and trend chasers, whose beliefs on both first and second moments of the conditional distribution of returns are based on past observations. Conditions for the stability of the "fundamental" equilibrium are established and the effect of the correlation between the risky assets is examined. It turns out that investors' anticipated correlation and dynamic portfolio diversification do not always have a stabilizing role, but rather may act as a source of complexity in the financial market.
KW - Asset pricing
KW - Bifurcation analysis
KW - Co-movements in stock prices
KW - Heterogeneous beliefs
KW - Portfolio choice
UR - https://www.scopus.com/pages/publications/33846634249
U2 - 10.1016/j.jebo.2005.08.005
DO - 10.1016/j.jebo.2005.08.005
M3 - Article
AN - SCOPUS:33846634249
SN - 0167-2681
VL - 62
SP - 408
EP - 427
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
IS - 3
ER -