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News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents

Fischer, Thomas (2012):
News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents.
In: Algorithmic Finance, IOS Press, pp. 123-139, 1, (2), ISSN 2158-5571 (Print), 2157-6203 (Online),
[Online-Edition: http://algorithmicfinance.org/1-2/pp123-139/],
[Article]

Item Type: Article
Erschienen: 2012
Creators: Fischer, Thomas
Title: News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents
Language: English
Journal or Publication Title: Algorithmic Finance
Volume: 1
Number: 2
Publisher: IOS Press
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
Date Deposited: 06 Aug 2012 14:02
Official URL: http://algorithmicfinance.org/1-2/pp123-139/
Additional Information:

JEL Classification: G14, D84, C62, C15.

Alternative keywords:
Alternative keywordsLanguage
Heterogeneous Agent Model, stock market, under and overreaction to news, moving average rules, financial stabilityEnglish
Alternative Abstract:
Alternative abstract Language
This paper presents a Heterogeneous Agent Model of a financial market with chartist and fundamentalist traders that exhibit bounded rationality and short-term thinking to explain the effect of under and overreaction to news. The existence of the Market Maker’s finite price adjustment speed and the presence of risk aversion lead to the fact that prices do not adjust instantaneously to new information. Chartists use moving average rules to make their investment decisions. They can transform an underreaction-only scenario into a market with overreaction. The use of long moving average rules might even make the market unstable. Higher market efficiency (low deviations from fundamental value), on the other hand, is achieved if high rationality and long-term thinking for the agents is assumed.English
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