Risk preference and stability under learning

Authored by Christophre Georges

Date Published: 2015

DOI: 10.1016/j.econlet.2015.04.029

Sponsors: No sponsors listed

Platforms: C++

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

We consider a simple market environment in which traders with finite memory update forecasting rules at random intervals by OLS. In this context, changes in the perception of market risk can trigger volatility and bubbles. Consequently, higher degrees of risk response among traders can have a destabilizing effect on price dynamics. We consider the interaction of this effect with memory, the speed of learning, and the nature of the forecasting rules. (C) 2015 Elsevier B.V. All rights reserved.

Tags

Bounded memory