Book contents
- Frontmatter
- Contents
- Preface by Masanao Aoki
- Preface by Hiroshi Yoshikawa
- 1 Introduction: A New Approach to Macroeconomics
- 2 The Methods: Jump Markov Process and Random Partitions
- 3 Equilibrium as Distribution: The Role of Demand in Macroeconomics
- 4 Uncertainty Trap: Policy Ineffectiveness and Long Stagnation of the Macroeconomy
- 5 Slow Dynamics of Macro System: No Mystery of Inflexible Prices
- 6 Business Cycles: An Endogenous Stochastic Approach
- 7 Labor Market: A New Look at the Natural Unemployment and Okun's Law
- 8 Demand Saturation-Creation and Economic Growth
- 9 The Types of Investors and Volatility in Financial Markets: Analyzing Clusters of Heterogeneous Agents
- 10 Stock Prices and the Real Economy: Power-Law versus Exponential Distributions
- References
- Author Index
- Subject Index
- Other books in the series (continued from page iii)
9 - The Types of Investors and Volatility in Financial Markets: Analyzing Clusters of Heterogeneous Agents
Published online by Cambridge University Press: 08 August 2009
- Frontmatter
- Contents
- Preface by Masanao Aoki
- Preface by Hiroshi Yoshikawa
- 1 Introduction: A New Approach to Macroeconomics
- 2 The Methods: Jump Markov Process and Random Partitions
- 3 Equilibrium as Distribution: The Role of Demand in Macroeconomics
- 4 Uncertainty Trap: Policy Ineffectiveness and Long Stagnation of the Macroeconomy
- 5 Slow Dynamics of Macro System: No Mystery of Inflexible Prices
- 6 Business Cycles: An Endogenous Stochastic Approach
- 7 Labor Market: A New Look at the Natural Unemployment and Okun's Law
- 8 Demand Saturation-Creation and Economic Growth
- 9 The Types of Investors and Volatility in Financial Markets: Analyzing Clusters of Heterogeneous Agents
- 10 Stock Prices and the Real Economy: Power-Law versus Exponential Distributions
- References
- Author Index
- Subject Index
- Other books in the series (continued from page iii)
Summary
Thoughtout this book, we have focused on the real economy. The methods explained in Chapter 2 are extremely useful, not only for analyzing the real economy, but for analyzing financial markets. In this chapter, we analyze the combinatorial problem that is so crucial in a market with many heterogeneous investors. It has important implications for volatility in the financial market.
Introduction
We have repeated time and again that the behavior of macroeconomic variables emerges as an outcome of aggregation of micro behavior of a large number of interacting agents. Financial markets are no exception. In fact, there has been a veritable explosion of empirical and simulation studies of financial markets – prices, returns, or volumes of transactions – based on the explicit assumption of heterogeneous investors (see Gopikrishnan et al., 1998; Lux and Marchesi, 1999; Mantegna and Stanley, 1994; Takayasu and Sato, 1997). Reported simulation studies of financial markets by multiagent models apparently mimic well many, if not all aspects of the actual behavior of asset returns (see Lux and Marchesi, 1999).
Investors in the markets employ various strategies or trading rules. For convenience, we identify investors with the strategies or the rules they employ, and say that investors of the same type form a group or cluster. Clusters evolve over time as agents switch their decision rules or behavioral patterns in response to changing economic environments. They also change as agents enter or exit.
- Type
- Chapter
- Information
- Reconstructing MacroeconomicsA Perspective from Statistical Physics and Combinatorial Stochastic Processes, pp. 255 - 274Publisher: Cambridge University PressPrint publication year: 2006