An Asset Pricing Model with Adaptive Heterogeneous Agents and Wealth Effects

  • Carl Chiarella
  • Xue-Zhong He
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 550)


The characterisation of agents' preferences by decreasing absolute risk aversion (DARA) and constant relative risk aversion (CRRA) are well documented in the literature and also supported in both empirical and experimental studies. This paper considers a financial market with heterogeneous agents having power utility functions, which are the only utility functions displaying both DARA and CRRA. By introducing a population weighted average wealth measure, we develop an adaptive model to characterise asset price dynamics as well as the evolution of population proportions and wealth dynamics. Some numerical simulations are included to illustrate the evolution of the wealth dynamics, market behaviour and market efficiency within the framework of heterogeneous agents.


Asset Price Trading Strategy Risky Asset Asset Price Model Dividend Yield 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  • Carl Chiarella
    • 1
  • Xue-Zhong He
    • 1
  1. 1.University of TechnologySydneyAustralia

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