Introducing Social Investors into Multi-Agent Models of Financial Markets
- 724 Downloads
Existing models of financial market prices typically assume that investors are informed with economic data and that wealth maximization motivates them. This paper considers the social dimensions of investing and the effect that this additional motivation has on the evolution of prices in a multi-agent model of an equity market. Agents in this model represent both economically informed investors and socially motivated investors who base their decision to invest solely on the popularity of the investment activity itself. The new model captures in a primitive but important way the notion of frenzy associated with speculative manias and panics, and it offers further insight into such anomalies as market bubbles and crashes.
KeywordsMulti-Agent Model Financial Market Modelling Social Investors Herding Signalling Games
Unable to display preview. Download preview PDF.
- 7.Fama, E.F.: Foundations of Finance. Basic Books, New York (1976)Google Scholar
- 9.Friedman, M.: The Case for Flexible Exchange Rates. In: Friedman, M. (ed.) Essays in Positive Economics, pp. 157–203. University of Chicago Press (1953)Google Scholar
- 13.Keynes, J.M.: The General Theory of Employment, Interest and Money. Reprinted Prometheus Books (1936, 1997)Google Scholar
- 14.Kindleberger, C.P.: Manias, Panics, and Crashes. Basic Books, New York (1978) (revised edition issued in 1989)Google Scholar
- 25.Visano, B.S.: Financial Crises: Socio-economic causes and institutional context. Routledge, London (forthcoming)Google Scholar
- 26.Williams, J.B.: The Theory of Investment Value. Reprinted Augustus M. Kelley, New York (1938, 1965)Google Scholar