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Zbl 1067.91024
Chiarella, Carl; Gallegati, Mauro; Leombruni, Roberto; Palestrini, Antonio
Asset price dynamics among heterogeneous interacting agents. (English)
[J] Comput. Econ. 22, No. 2-3, 213-223 (2003). ISSN 0927-7099; ISSN 1572-9974/e

Summary: We investigate the presence of rational herding on asset price dynamics during the intra-day trading with heterogeneous interacting agents, whose information set is not complete. In the model, individual probability measures of financial investment strategies are defined using statistical mechanics concepts. In addition, there is a learning process toward the best strategy, implemented as a genetic algorithm. Simulations show that imitative behavior can be a rational strategy, since it allows an investor to gain excess returns on an asset by exploiting information regarding price dynamics not strictly contained in the fundamental solution. Herd behavior is rational in the sense that it produces profits at the expense of increasing the complexity of the system.

MSC 2000:: *91B28 Finance etc.
91B62 Dynamic economic models etc.

Keywords: asset price dynamics; rational herding; genetic algorithms

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