Article ID: | iaor2006700 |
Country: | Germany |
Volume: | 9 |
Issue: | 1/2 |
Start Page Number: | 5 |
End Page Number: | 30 |
Publication Date: | Jul 2001 |
Journal: | Central European Journal of Operations Research |
Authors: | Gaunersdorfer Andrea |
Keywords: | stock market |
I present a simple model of an evolutionary financial market with heterogeneous agents, based on the concept of adaptive belief systems introduced by Brock and Hommes. Agents choose between different forecast rules based on past performance, resulting in an evolutionary dynamics across predictor choice coupled to the equilibrium dynamics. The model generates endogenous price fluctuations with similar statistical properties as those observed in real return data, such as fat tails and volatility clustering. These similarities are demonstrated for data from the British, German, and Austrian stock markets.