Since 2013 regulators have been investigating the activities of some of the world's largest banks around the setting of daily benchmarks for forex prices. These benchmarks are a key linchpin of world financial markets, providing standardize prices used to value global equity and bond portfolios,...

I characterize the global solution to the portfolio problem of two heterogeneous investors with general preferences, in a two-tree, two-good environment. Investors have recursive preferences and a bias in consumption towards a preferred good. The framework highlights the role of the allocation...

This chapter surveys research on agent-based models used in finance. It will concentrate on models where the use of computational tools is critical for the process of crafting models which give insights into the importance and dynamics of investor heterogeneity in many financial settings.

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...

Neoclassical economics does not offer a useful model of finance, because economic and financial behavior have different motivational dynamics. The law of supply and demand operates among rational valuers to produce equilibrium in the marketplace for utilitarian goods and services. The efficient...

This paper develops a model of heterogeneous agents on an options market. On Paris Option Market, negotiators have different beliefs about future-at the volatility of the underlying. We assume in advance two groups; fundamentalists who believe in mean reversion and Chartists that incorporate...

This article examines the relationship between changes in the level of investor fear (measured by VIX) and financial market returns. We document a statistically significant relationship, across asset classes, consistent with a flight to quality as investor fear increases. As VIX increase there...

Behavioral finance presented in Finance for Normal People is a second generation behavioral finance. The first generation, starting in the early 1980s, largely accepted standard finance's notion of people's wants as “rational” wants – restricted to the utilitarian benefits of high returns...

We study the impact of realized equity premium and stock market volatility on aggregate gamblingexpenditures. We expect the wealth effect of higher realized returns will increase gambling (enter-tainment good), but also attract gamblers to equity markets, lowering aggregate wagers. Similarly,we...

Recent regulatory changes within Europe (regulation MiFID II) mandate broker-dealers to charge clients explicitly for any investment research they provide. This new mandate replaces the common practice of bundling these charges with other variable fees, such as those for trade executions....