Financial-market stability in the presence of heterogeneous adaptive agents

College of Management and Economics, Tianjin University, China

Ziqiang Wu

Ziqiang Wu

Financial markets provide an efficient way to trade assets of various kinds. Asset prices determine investor decisions and depend on them in turn, leading to complex dynamics that are prone to drastic fluctuations in both asset price and investor wealth; an issue that, although not new, has recently attracted a lot of public attention.

Investors themselves are intrinsically heterogeneous and adaptive with respect to their decision-making strategies, and while the market may reward “following the herd” for a while, any strategy is ultimately bound to fail when it is universally adopted.

I will analyze the interplay between investor types and financial-market dynamics by studying a modified version of the agent-based Santa Fe Institute artificial stock market model, augmented to allow for the emergence of different investor personalities and to include a mechanism for social learning. I will study the emerging investor-type patterns, and try to draw qualitative conclusions about conditions that promote, or threaten, the stability of financial markets.

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Last edited: 24 March 2016

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