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Avoiding regret in an agent-based asset pricing model

Avoiding regret in an agent-based asset pricing model
Avoiding regret in an agent-based asset pricing model
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.
agent-based model, asset pricing, disposition effect, behavioural bias
1544-6123
Pruna, Radu T.
73b6feac-30f0-4c5b-80c9-38bbf3d47e80
Polukarov, Maria
bd2f0623-9e8a-465f-8b29-851387a64740
Jennings, Nicholas R.
ab3d94cc-247c-4545-9d1e-65873d6cdb30
Pruna, Radu T.
73b6feac-30f0-4c5b-80c9-38bbf3d47e80
Polukarov, Maria
bd2f0623-9e8a-465f-8b29-851387a64740
Jennings, Nicholas R.
ab3d94cc-247c-4545-9d1e-65873d6cdb30

Pruna, Radu T., Polukarov, Maria and Jennings, Nicholas R. (2017) Avoiding regret in an agent-based asset pricing model. Finance Research Letters. (doi:10.1016/j.frl.2017.09.014).

Record type: Article

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.

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Avoiding Regret in an Agent-Based Asset Pricing Model - Accepted Manuscript
Available under License Creative Commons Attribution Non-commercial No Derivatives.
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Accepted/In Press date: 22 September 2017
e-pub ahead of print date: 28 September 2017
Keywords: agent-based model, asset pricing, disposition effect, behavioural bias
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Identifiers

Local EPrints ID: 415655
URI: http://eprints.soton.ac.uk/id/eprint/415655
DOI: doi:10.1016/j.frl.2017.09.014
ISSN: 1544-6123
PURE UUID: c9aa8d7a-b0bc-4805-9db6-241fbc4414a1

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Date deposited: 17 Nov 2017 17:30
Last modified: 16 Mar 2024 05:56

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Contributors

Author: Radu T. Pruna
Author: Maria Polukarov
Author: Nicholas R. Jennings

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