Journal Article
No. 2018-20 |
April 23, 2018
Learning to forecast, risk aversion, and microstructural aspects of financial stability
(Published in Agent-based modelling and complexity economics)
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 the risk aversion has, counterintuitively, the opposite effect.