A New Paradigm of Financial Market Behaviour

Funding: 2004: $80,000
2005: $90,000
2006: $90,000

Project Member(s): He, X.

Funding or Partner Organisation: Australian Research Council (ARC Discovery Projects)

Start year: 2004

Summary: The project contributes to the development of a newly emerging paradigm for describing financial market behaviour. It will model financial markets as adaptively evolving systems that are the outcome of the interaction of boundedly rational economic agents with heterogeneous beliefs. The new paradigm will seek to explain aspects of financial market behaviour not well explained by the standard finance paradigm. The project outcomes will be of benefit to financial market researchers and regulators by providing a better framework for understanding and managing financial market volatility.

Publications:

He, XZ & Zheng, H 2016, 'Trading heterogeneity under information uncertainty', Journal of Economic Behavior and Organization, vol. 130, pp. 64-80.
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Chiarella, C & He, X 2008, 'An adaptive model of asset price and wealth dynamics in a market with heterogeneous trading strategies' in Seese, D, Weinhardt, C & Schlottmann, F (eds), Handbook on Information Technology in Finance, Springer, Germany, pp. 465-499.
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He, X, Hamill, P & Li, Y 2008, 'Can Trend Followers Survive in the Long-Run? Insights from Agent-Based Modeling' in Brabazon, A & O'Neill, M (eds), Natural Computing in Computational Finance, Springer, Berlin, Germany, pp. 253-269.
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Chiarella, C, Dieci, R, Gardini, L & Sbragia, L 2008, 'A model of financial market dynamics with heterogeneous beliefs and state-dependent confidence', Computational Economics, vol. 32, no. 1-2, pp. 55-72.
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Chiarella, C., Dieci, R. & He, X. 2007, 'Heterogeneous Expectations and Speculative Behavior in a Dynamic Multi-Asset Framework', Journal of Economic Behavior and Organization, vol. 62, no. 3, pp. 408-427.
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Corron, N, He, X & Westerhoff, FH 2007, 'Butter Mountains, Milk Lakes and optimal Price Limiters', Applied Economic Letters, vol. 14, no. 15, pp. 1131-1136.
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Chiarella, C, He, X & Wang, D 2006, 'Statistical properties of a heterogeneous asset pricing model with time-varying second moment' in Namatame, A, Kaizouji, T & Aruka, Y (eds), The Complex Networks of Economic Interactions: essays in agent-based economics & econophysics, Springer, Berlin, Germany, pp. 109-123.
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Chiarella, C., Flaschel, P., He, X. & Hung, H. 2006, 'A stochastic model of real-financial interaction with boundedly rational heterogeneous agents' in Chiarella, C., Franke, R., Flaschel, P. & Semmler, W. (eds), Quantitative and Empirical Analysis of Nonlinear Dynamic Macromodels, Elsevier, Amsterdam, Netherlands, pp. 333-358.
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Chiarella, C, He, X & Hommes, C 2006, 'Moving average rules as a source of market instability', Physica A: Statistical Mechanics and its Applications, vol. 370, no. 1, pp. 12-17.
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Chiarella, C, He, X & Wang, D 2006, 'A behavioral asset pricing model with a time-varying second moment', Chaos, Solitons and Fractals, vol. 29, no. 3, pp. 535-555.
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Chiarella, C, He, X, Hung, H & Zhu, P 2006, 'An analysis of the cobweb model with boundedly rational heterogeneous producers', Journal of Economic Behavior & Organization, vol. 61, no. 4, pp. 750-768.
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Chiarella, C., Dieci, R. & Gardini, L. 2006, 'Asset price and wealth dynamics in a financial market with heterogeneous agents', Journal of Economic Dynamics and Control, vol. 30, no. 9-10, pp. 1755-1786.
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Dieci, R, Foroni, I, Gardini, L & He, X 2006, 'Market mood, adaptive beliefs and asset price dynamics', Chaos, Solitons and Fractals, vol. 29, no. 3, pp. 520-534.
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Chiarella, C & He, X 2005, 'An asset pricing model with adaptive heterogeneous agents and wealth effects' in Lux, T, Reitz, S & Samanidou, E (eds), Nonlinear Dynamics and Heterogeneous Interacting Agents, Springer, Berlin, Germany, pp. 269-285.
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Chiarella, C, Dieci, R & Gardini, L 2005, 'Asset price dynamics and diversification with heterogeneous agents' in Lux, T, Reitz, S & Samanidou, E (eds), Nonlinear Dynamics and Heterogeneous Interacting Agents, Springer, Berlin, Germany, pp. 251-267.
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Bird, R, He, X, Thosar, SB & Woolley, PK 2005, 'Momentum and index investing: implications for market efficiency', Journal of Financial Transformation, vol. 15, no. December, pp. 79-85.

Bird, R, He, X, Thosar, SB & Woolley, PK 2005, 'The case for market inefficiency: investment style and market pricing', The Journal of Asset Management, vol. 5, no. 6, pp. 365-388.
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Bohm, V & Chiarella, C 2005, 'Mean variance preferences expectations formation and the dynamics of random asset prices', Mathematical Finance, vol. 15, no. 1, pp. 61-97.
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Chiarella, C, Dieci, R & Gardini, L 2005, 'The dynamic interaction of speculation and diversification', Applied Mathematical Finance, vol. 12, no. 1, pp. 17-52.
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He, X & Westerhoff, FH 2005, 'Commodity markets, price limiters and speculative price dynamics', Journal Of Economic Dynamics & Control, vol. 29, no. 9, pp. 1577-1596.
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Keywords: Bounded Rationality Nonlinear Dynamical Systems Heterogeneous Beliefs Investor Psychology Evolutionary Dynamics Asset Price Dynamics

FOR Codes: Finance, Mathematical Economics, Dynamical Systems, Finance and investment services, Microeconomic issues not elsewhere classified, Economic issues not elsewhere classified, Ordinary Differential Equations, Difference Equations and Dynamical Systems