Leverage and Evolving Heterogeneous Beliefs in a Simple Agent-Based Financial Market

11 Pages Posted: 12 Feb 2018

See all articles by Edoardo Gaffeo

Edoardo Gaffeo

University of Trento - Department of Economics and Management

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

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

Edoardo Gaffeo (Contact Author)

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, Trento 38100
Italy

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