Asset prices, traders' behavior and market design

Publication Type:
Journal Article
Journal of Economic Dynamics and Control, 2009, 33 (5), pp. 1073 - 1090
Issue Date:
Filename Description Size
Thumbnail2011002511OK.pdf817.57 kB
Adobe PDF
Full metadata record
The dynamics of a financial market with heterogeneous agents are analyzed under different market architectures. We start with a tractable behavioral model under Walrasian market clearing and simulate it under different trading protocols. The key behavioral feature of the model is the switching by agents between simple forecasting rules on the basis of a fitness measure. By analyzing the dynamics under order-driven protocols we show that the behavioral and structural assumptions of the model are closely intertwined. The high responsiveness of agents to a fitness measure causes excess volatility, but the frictions of the order-driven markets may stabilize the dynamics. We also analyze and compare allocative efficiency and time series properties under different protocols. © 2009 Elsevier B.V. All rights reserved.
Please use this identifier to cite or link to this item: