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

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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


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