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Interacting Agents in Finance

Cars H. Hommes
2006 Social Science Research Network  
Interacting agents in finance represent a behavioral, agent-based approach in which financial markets are viewed as complex adaptive systems consisting of many boundedly rational agents interacting through  ...  An interacting agent system acts as a noise filter, transforming and amplifying purely random news about economic fundamentals into an aggregate market outcome exhibiting important stylized facts such  ...  This is essentially an evolutionary argument saying that irrational agents will be driven out of the market by rational agents.  ... 
doi:10.2139/ssrn.894221 fatcat:uffqgqf3rbhwpci3li6522bx6u

Interacting Agents in Finance [chapter]

Cars Hommes
2008 The New Palgrave Dictionary of Economics  
Interacting agents in finance represent a behavioral, agent-based approach in which financial markets are viewed as complex adaptive systems consisting of many boundedly rational agents interacting through  ...  An interacting agent system acts as a noise filter, transforming and amplifying purely random news about economic fundamentals into an aggregate market outcome exhibiting important stylized facts such  ...  This is essentially an evolutionary argument saying that irrational agents will be driven out of the market by rational agents.  ... 
doi:10.1057/978-1-349-95121-5_2466-1 fatcat:elanrqusgrbodpyx3kvtuperni

Heterogeneous Agent Models in Economics and Finance

C. H. Hommes
2005 Social Science Research Network  
Aggregation of simple interactions at the micro level may generate sophisticated structure at the macro level.  ...  Most of these models are behavioral models with boundedly rational agents using different heuristics or rule of thumb strategies that may not be perfect, but perform reasonably well.  ...  memory in the fitness measure affects stability of evolutionary adaptive systems and survival of technical trading.  ... 
doi:10.2139/ssrn.742384 fatcat:mwoqwvlf6jg7vgppi7hezld23a

Speculative bubbles and fat tail phenomena in a heterogeneous agent model [article]

Taisei Kaizoji
2003 arXiv   pre-print
The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations.  ...  Furthermore, we show that the distributions of returns generated from the heterogeneous agent model have fat tails, a remarkable stylized fact observed in almost all financial markets.  ...  Financial support by the Alexander Humboldt Foundation, and the Japan Society for Promotion of Science under the Grant-in-Aid, No. 06632 gratefully acknowledged.  ... 
arXiv:nlin/0312040v1 fatcat:jw6vml7m5jgsrdzk7yh6bq6gya

Trading in markets with noisy information: an evolutionary analysis

Daan Bloembergen, Daniel Hennes, Peter McBurney, Karl Tuyls
2015 Connection science  
We analyse the value of information in a stock market where information can be noisy and costly, using techniques from empirical game theory.  ...  These results provide insight into the complexity of real marketplaces, and show under which conditions a broad mix of different trading strategies might be sustainable.  ...  Moreover, an evolutionary analysis of the market showed that indeed only insiders can prevail when information is freely available.  ... 
doi:10.1080/09540091.2015.1039492 fatcat:l44rc6ujavdgjplcrkxhn42v5u

Speculative behavior and the dynamics of interacting stock markets

Noemi Schmitt, Frank Westerhoff
2014 Journal of Economic Dynamics and Control  
We develop a simple agent-based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets.  ...  Simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets, including bubbles and crashes, fat-tailed return distributions  ...  Edwards and Susmel 2001) , we develop an agent-based financial market model in which speculators have the opportunity to trade in two different stock markets. Our model is structured as follows.  ... 
doi:10.1016/j.jedc.2014.05.009 fatcat:kkvynapywvaztb6te6p474wgyu

Agent-based financial markets and New Keynesian macroeconomics: a synthesis

Matthias Lengnick, Hans-Werner Wohltmann
2012 Journal of Economic Interaction and Coordination  
Abstract We combine a simple agent-based model of financial markets and a New Keynesian macroeconomic model with bounded rationality via two straightforward channels.  ...  The result is a macroeconomic model that allows for the endogenous development of business cycles and stock price bubbles.  ...  While KI (2005) and KM (2006) are clearly inspired by the agent-based financial markets literature with its fundamentalist and chartist trading rules, none of the above models explicitly motivates  ... 
doi:10.1007/s11403-012-0100-y fatcat:mynhcyqla5dbvp3nseqhyv5fli

Market Microstructure: A Self-Organizing Map Approach to Investigate Behavior Dynamics under an Evolutionary Environment [chapter]

Michael Kampouridis, Shu-Heng Chen, Edward Tsang
2011 Studies in Computational Intelligence  
The results on four empirical financial markets show that the markets' behavior constantly changes; thus, agents' trading strategies need to continuously adapt to the changes taking place in the market  ...  Our model consisted of two parts: Genetic Programming, which acted as an inference engine for trading rules, and Self-Organizing Maps (SOM), which was used for clustering the above rules into trading strategy  ...  Acknowledgments This work was supported by an EPSRC grant (No. EP/P563361/01) and by AI-Econ Center of National Cheng Chi University, Taiwan.  ... 
doi:10.1007/978-3-642-23336-4_10 fatcat:hhassxtuvnhxxp4xyhlgmhxc7q

Alternative distributed models for the comparative study of stock market phenomena

Alexandros Benos, Elpida Tzafestas
1997 Information Sciences  
In this paper we present a methodology of study of complex phenomena emerging in stock markets.  ...  The possibility of their application to the modeling and study of stock market phenomena is demonstrated on a simple example of a central agency that regulates the behavior of the investors : we show how  ...  In the latter, each agent submits to a central agency which announced a price, an order to buy or sell a number of securities based on information he might have privately acquired, the analysis he has  ... 
doi:10.1016/s0020-0255(96)00152-1 fatcat:t32d6nvcp5amzidajkb2inxiga

Can Trend Followers Survive in the Long-Run% Insights from Agent-Based Modeling [chapter]

Xue-Zhong He, Philip Hamill, Youwei Li
2008 Studies in Computational Intelligence  
can survive under various market conditions in the long/short-run.  ...  Our analysis shows that in a MF framework this is not necessarily the case and that trend followers can survive in the long-run.  ...  Survivability of the chartists is measured by their positive wealth share generated from their trading strategy.  ... 
doi:10.1007/978-3-540-77477-8_14 fatcat:po2dxjtkhrdzbgyqzjxu5gs56e

Evolutionary Finance Approach:Literature Survey

YosraMefteh Rekik, Younes Boujelbene
2014 IOSR Journal of Economics and Finance  
This includes the collection of new methods of empirical analysis, and the development of new mathematical and computational tools.  ...  The purpose of our research is precisely to build models and perform analysis of the economy as a complex system prone to sudden and major changes.  ...  As an alternative, taking individual interactions into account, agent-based Artificial Stock Market modeling has developed rapidly over the last 20 years.  ... 
doi:10.9790/5933-03114453 fatcat:mrexch23dnejjouuhgqywdbu2i

The effectiveness of Keynes–Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach

Frank H. Westerhoff, Roberto Dieci
2006 Journal of Economic Dynamics and Control  
As it turns out, an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely resembles the behavior of actual speculative prices.  ...  Whether an agent trades and, if so, in which market with which strategy depends on profit considerations.  ...  In the experiments, each participant receives an initial portfolio of cash and stocks and is free to trade. The trading is conducted by computer through local networks.  ... 
doi:10.1016/j.jedc.2004.12.004 fatcat:pazmlxoaezhcze4yxopxkeghly

Bifurcation routes to volatility clustering under evolutionary learning

Andrea Gaunersdorfer, Cars H. Hommes, Florian O.O. Wagener
2008 Journal of Economic Behavior and Organization  
Fractions of trader types change over time according to evolutionary learning, with chartists conditioning their forecasting rule upon deviations from a benchmark fundamental.  ...  of the system, and (2) intermittency and associated bifurcation routes to strange attractors.  ...  Agents trade in a market with one risky and one risk-free asset.  ... 
doi:10.1016/j.jebo.2007.07.004 fatcat:w6uogl5vfnfv3cwxeiigtmitiu

Bounded Rational Heterogeneous Agents In Artificial Stock Markets: Literature Review And Research Direction

Talal Alsulaiman, Khaldoun Khashanah
2015 Zenodo  
In this paper, we provided a literature survey on the artificial stock problem (ASM). The paper began by exploring the complexity of the stock market and the needs for ASM.  ...  Agent-based simulation is a simulation technique commonly used to build AFMs. The paper proceeds by discussing the components of the ASM.  ...  ACKNOWLEDGMENT The authors would like to thank Dr.Ali Mostashari for his help and comments.  ... 
doi:10.5281/zenodo.1108121 fatcat:nvsrubo73nd4toeiw2ov7cokpa

Prices, debt and market structure in an agent-based model of the financial market

Thomas Fischer, Jesper Riedler
2014 Journal of Economic Dynamics and Control  
-FinMaP-Working Paper No. 21 -P a g e | 2 We develop an agent-based model in which heterogeneous and boundedly rational agents interact by trading a risky asset at an endogenously set price.  ...  In particular, we observe an increasing frequency of severe liquidity crises that can lead to the collapse of the entire model financial system. JEL classification: C63 -D53 -D84  ...  Specifically, in our model agents can select either a strategy based on fundamentals or a chartist strategy based on technical analysis.  ... 
doi:10.1016/j.jedc.2014.08.013 fatcat:ysblgiwjbjdg7mlahqa2lonwsu
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