Leverage and Evolving Heterogeneous Beliefs in a Simple Agent-Based Financial Market
11 Pages Posted: 12 Feb 2018
Date Written: February 6, 2018
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.
Keywords: Agent-based model; Financial markets; Leverage cycle
JEL Classification: C63; D53; G12; G18
Suggested Citation: Suggested Citation
Gaffeo, Edoardo, Leverage and Evolving Heterogeneous Beliefs in a Simple Agent-Based Financial Market (February 6, 2018). Available at SSRN: https://ssrn.com/abstract=3119003 or http://dx.doi.org/10.2139/ssrn.3119003
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