Avoiding regret in an agent-based asset pricing model

Authored by Radu T Pruna, Maria Polukarov, Nicholas R Jennings

Date Published: 2018

DOI: 10.1016/j.frl.2017.09.014

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We use an agent-based asset pricing model to test the implications of the disposition effect (avoiding regret) on investors' interactions and price settings. We show that it has a direct impact on the returns series produced by the model, altering important stylized facts such as its heavy tails and volatility clustering. Moreover, we show that the horizon over which investors compute their wealth has no effect on the dynamics produced by the model.

Tags

Agent-based model Asset pricing Markets Disposition effect Behavioural bias