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Avoiding regret in an agent-based asset pricing model

Author

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  • Pruna, Radu T.
  • Polukarov, Maria
  • Jennings, Nicholas R.

Abstract

We use an agent-based asset pricing model to test the implications of the disposition effect (avoiding regret) on investors’ interactions and price settings. We show that it has a direct impact on the returns series produced by the model, altering important stylized facts such as its heavy tails and volatility clustering. Moreover, we show that the horizon over which investors compute their wealth has no effect on the dynamics produced by the model.

Suggested Citation

  • Pruna, Radu T. & Polukarov, Maria & Jennings, Nicholas R., 2018. "Avoiding regret in an agent-based asset pricing model," Finance Research Letters, Elsevier, vol. 24(C), pages 273-277.
    • Handle: RePEc:eee:finlet:v:24:y:2018:i:c:p:273-277
    DOI: 10.1016/j.frl.2017.09.014
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    References listed on IDEAS

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    Cited by:

    1. Gaffeo, Edoardo, 2019. "Leverage and evolving heterogeneous beliefs in a simple agent-based financial market," Finance Research Letters, Elsevier, vol. 29(C), pages 272-279.

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    More about this item

    Keywords

    Agent-based model; Asset pricing; Disposition effect; Behavioural bias;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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