Discussion Paper

No. 2017-104 | December 01, 2017
Learning to forecast, risk aversion, and microstructural aspects of financial stability

Abstract

This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas risk aversion can, counterintuitively, have perverse consequences on it.

JEL Classification:

E44, E47, C63

Assessment

  • Downloads: 620

Links

Cite As

Alessio Emanuele Biondo (2017). Learning to forecast, risk aversion, and microstructural aspects of financial stability. Economics Discussion Papers, No 2017-104, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-104


Comments and Questions


Anonymous - Referee report 1
December 28, 2017 - 09:12

see attached file


Alessio Emanuele Biondo - Reply to Referee Report 1
January 09, 2018 - 09:31

Dear Editor, let me thank the referee for precious comments.
Please see the attached file, where detailed replies are given.
Best regards,
Alessio Emanuele Biondo