Market dynamics when agents anticipate correlation breakdown
type: Item
instance of: scholarly article
title: Market dynamics when agents anticipate correlation breakdown
zbMATH Open document ID: 1230.91169
DOI: 10.1155/2011/959847
author: Paolo Falbo
author: Rosanna Grassi
published in: Discrete Dynamics in Nature and Society
publication date: 2012-01-23T00:00:00Z
review text: Summary: The aim of this paper is to analyse the effect introduced in the dynamics of a financial market when agents anticipate the occurrence of a correlation breakdown. What emerges is that correlation breakdowns can act both as a consequence and as a triggering factor in the emergence of financial crises rational bubbles. We propose a market with two kinds of agents: speculators and rational investors. Rational agents use excess demand information to estimate the variance-covariance structure of assets returns, and their investment decisions are represented as a Markowitz optimal portfolio allocation. Speculators are uninformed agents and form their expectations by imitative behavior, depending on market excess demand. Several market equilibria result, depending on the prevalence of one of the two types of agents. Differing from previous results in the literature on the interaction between market dynamics and speculative behavior, rational agents can generate financial crises, even without the speculator contribution.
Mathematics Subject Classification ID: 91G10
Mathematics Subject Classification ID: 91B24
Mathematics Subject Classification ID: 91B55
zbMATH DE Number: 5999675
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2011/959847
OpenAlex ID: W2030152993
Wikidata QID: Q58655572
cites work: The Dynamic Interaction of Speculation and Diversification
cites work: HERD BEHAVIOR AND NONFUNDAMENTAL ASSET PRICE FLUCTUATIONS IN FINANCIAL MARKETS
cites work: Advances in prospect theory: cumulative representation of uncertainty
description: scientific article; zbMATH DE number 5999675