Palczewski, J, Schenk-Hoppé, KR and Wang, T (2016) Itchy Feet vs Cool Heads: Flow of Funds in an Agent-based Financial Market. Journal of Economic Dynamics and Control, 63. pp. 53-68. ISSN 0165-1889
Abstract
Investors tend to move funds when they are unhappy with their current portfolio managers' performance. We study the effect of the size of this flow of funds in an agent-based model of the financial market. The model combines the discrete choice approach from agent-based modelling, where all capital is mobile, with the evolutionary finance framework where all growth is endogenous. Our results show that, if investors exhibit recency bias in evaluating portfolio managers' performance, even a small amount of freely flowing capital has a huge impact on the market dynamics and the survival of noise traders. We also find that investors' intensity of choice is a driving force for excess volatility and extreme price movements when the size of the flow of funds is large.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2015 Published by Elsevier B.V. This is an author produced version of a paper accepted for publication by Journal of Economic Dynamics and Control. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Portfolio management; Agent-based financial market; Evolutionary finance; Flow of funds |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Mathematics (Leeds) > Statistics (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 06 Jan 2016 13:39 |
Last Modified: | 23 Dec 2017 01:38 |
Published Version: | http://dx.doi.org/10.1016/j.jedc.2015.12.002 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.jedc.2015.12.002 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:93192 |