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Leverage and evolving heterogeneous beliefs in a simple agent-based financial market

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  • EDOARDO GAFFEO

Abstract

Recent research has acknowledged the crucial role of financial intermediaries’ balance sheet variables – namely, wealth and leverage – in the dynamics of asset prices. In this paper we use a prototypical “small-type†artificial financial market model with heterogeneous interacting traders to pin down how asset prices are affected by the complex interaction between balance sheet constraints and the endogenous evolution of trading rules.

Suggested Citation

  • Edoardo Gaffeo, 2018. "Leverage and evolving heterogeneous beliefs in a simple agent-based financial market," DEM Working Papers 2018/03, Department of Economics and Management.
    • Handle: RePEc:trn:utwprg:2018/03
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    Cited by:

    1. Roman Mestre, 2021. "A wavelet approach of investing behaviors and their effects on risk exposures," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-37, December.

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    More about this item

    Keywords

    Agent-based model; Financial markets; Leverage cycle;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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