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Prices, Debt and Market Structure in an Agent-Based Model of the Financial Market

Fischer, Thomas ; Riedler, Jesper (2012)
Prices, Debt and Market Structure in an Agent-Based Model of the Financial Market.
In: ZEW Discussion Papers, (12-045)
Artikel, Bibliographie

Kurzbeschreibung (Abstract)

We develop an agent-based model in which heterogenous and boundedly rational agents interact by trading a risky asset at an endogenously set price. Agents are endowed with balance sheets comprising the risky asset as well as cash on the asset side and equity capital as well as debt on the liabilities side. The introduction of balance sheets and debt into an agent-based setup is relatively new to the literature and allows us to tackle several research questions that are mostly inaccessible following conventional methodology, especially representative agent models. A number of findings emerge when simulating the model. We find that the empirically observable log-normal distribution of bank balance sheet size naturally emerges and that higher levels of leverage lead to a greater inequality among agents. When further analyzing the relationship between leverage and balance sheets, we observe that decreasing credit frictions result in an increasingly procyclical behavior of leverage, which is typical for investment banks. We show how decreasing credit frictions increase volatility but decrease the number of bankruptcies.

JEL classification: C63 - D53 - D84

Typ des Eintrags: Artikel
Erschienen: 2012
Autor(en): Fischer, Thomas ; Riedler, Jesper
Art des Eintrags: Bibliographie
Titel: Prices, Debt and Market Structure in an Agent-Based Model of the Financial Market
Sprache: Englisch
Publikationsjahr: 13 Juli 2012
Titel der Zeitschrift, Zeitung oder Schriftenreihe: ZEW Discussion Papers
(Heft-)Nummer: 12-045
URL / URN: http://ftp.zew.de/pub/zew-docs/dp/dp12045.pdf
Kurzbeschreibung (Abstract):

We develop an agent-based model in which heterogenous and boundedly rational agents interact by trading a risky asset at an endogenously set price. Agents are endowed with balance sheets comprising the risky asset as well as cash on the asset side and equity capital as well as debt on the liabilities side. The introduction of balance sheets and debt into an agent-based setup is relatively new to the literature and allows us to tackle several research questions that are mostly inaccessible following conventional methodology, especially representative agent models. A number of findings emerge when simulating the model. We find that the empirically observable log-normal distribution of bank balance sheet size naturally emerges and that higher levels of leverage lead to a greater inequality among agents. When further analyzing the relationship between leverage and balance sheets, we observe that decreasing credit frictions result in an increasingly procyclical behavior of leverage, which is typical for investment banks. We show how decreasing credit frictions increase volatility but decrease the number of bankruptcies.

JEL classification: C63 - D53 - D84

Schlagworte:
Einzelne SchlagworteSprache
agent-based model - financial markets - instability - balance sheets - leverage - size distribution - credit frictionsEnglisch
Fachbereich(e)/-gebiet(e): 01 Fachbereich Rechts- und Wirtschaftswissenschaften
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Volkswirtschaftliche Fachgebiete
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
Hinterlegungsdatum: 20 Jul 2012 15:41
Letzte Änderung: 29 Mai 2016 21:18
PPN:
Schlagworte:
Einzelne SchlagworteSprache
agent-based model - financial markets - instability - balance sheets - leverage - size distribution - credit frictionsEnglisch
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