An asset pricing model with adaptive heterogeneous agents and wealth effects

Carl Chiarella*, Xue Zhong He

*Corresponding author for this work

Research output: Chapter in Book or Report/Conference proceedingConference Proceedingpeer-review

4 Citations (Scopus)


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 languageEnglish
Title of host publicationNonlinear Dynamics and Heterogeneous Interacting Agents
EditorsThomas Lux, Eleni Samanidou, Stefan Reitz
Number of pages17
Publication statusPublished - 2005
Externally publishedYes

Publication series

NameLecture Notes in Economics and Mathematical Systems
ISSN (Print)0075-8442


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