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An Adaptive Model of Asset Price and Wealth Dynamics in a Market with Heterogeneous Trading Strategies

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Abstract

The traditional asset-pricing models – such as the capital asset pricing model (CAPM) of [42] and [34], the arbitrage pricing theory (APT) of [40], or the intertemporal capital asset pricing model (ICAPM) of [38] – have as one of their important assumptions, investor homogeneity. In particular the paradigm of the representative agent assumes that all agents are homogeneous with regard to their preferences, their expectations and their investment strategies.1 However, as already argued by Keynes in the 1930s, agents do not have sufficient knowledge of the structure of the economy to form correct mathematical expectations that would be held by all agents.

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Author information

Authors and Affiliations

  1. University of Technology, Sydney, Australia

    Carl Chiarella & Xue-Zhong He

Authors
  1. Carl Chiarella
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  2. Xue-Zhong He
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Editor information

Editors and Affiliations

  1. Institute AIFB, University of Karlsruhe (TH), 76128, Karlsruhe, Germany

    Detlef Seese

  2. IISM, University of Karlsruhe (TH), 76218, Karlsruhe, Germany

    Christof Weinhardt

  3. Gillardon AG financial software, Alte Wilhelmstr. 4, 75015, Bretten, Germany

    Frank Schlottmann

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Chiarella, C., He, XZ. (2008). An Adaptive Model of Asset Price and Wealth Dynamics in a Market with Heterogeneous Trading Strategies. In: Seese, D., Weinhardt, C., Schlottmann, F. (eds) Handbook on Information Technology in Finance. International Handbooks Information System. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-49487-4_20

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