Interacting agents in finance represent a behavioral, agent-based approach in which financial markets are viewed as complex adaptive systems consisting of many boundedly rational agents interacting through simple heterogeneous investment strategies, constantly adapting their behavior in response...

This paper considers a simple Continuous Beliefs System (CBS) to investigate the effects on price dynamics of several behavioral assumptions: (i) herd behaviour; (ii) a-synchronous updating of beliefs; and (iii) heterogeneity in time horizons (memory) among agents. The recently introduced...

This paper surveys work on dynamic heterogeneous agent models (HAMs) in economics and finance. Emphasis is given to simple models that, at least to some extent, are tractable by analytic methods in combination with computational tools. Most of these models are behavioral models with boundedly...

We estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents. The fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark. An...

U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We use a state space model to study 24-hour price discovery. As opposed to the standard "variance ratio'' approach,...

Risk managers use portfolios to diversify away the unpriced risk of individual securities. In this article we compare the benefits of portfolio diversification for downside risk in case returns are normally distributed with the case of fat-tailed distributed returns. The downside risk of a...

See 'Political Connections And Preferential Access To Finance: The Role Of Campaign Contributions' in <A HREF="http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VBX-4P3DY39-4&_user=499884&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1004038141&_rerunOrigin=scholar.google&_acct=C000024499&_version=1&_urlVersion=0&_userid=499884&md5=d48c00bd293b73b16a75eb763ff75630"><I>Journal of Financial Economics</I>, 2008, 88(3), 554-580</A>.

These notes review two simple heterogeneous agent models in economics and finance. The first is a cobweb model with rational versus naive agents introduced in Brock and Hommes (1997). The second is an asset pricing model with fundamentalists versus technical traders introduced in Brock and...

We study whether the Sarbanes-Oxley Act (SOX) of 2002 made firms less opaque. For identification, we use a difference-in-differences estimation approach and compare EU firms that are cross-listed in the US—and therefore subject to SOX—with comparable EU firms that are not cross-listed. We...