TU Darmstadt / ULB / TUprints

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

Fischer, Thomas :
News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents.
In: Darmstadt Discussion Papers in Economics, 205. Darmstadt
[Report], (2011)

[img]
Preview
Text
ddpie_205.pdf
Available under Only rights of use according to UrhG.

Download (392kB) | Preview
Item Type: Report
Title: News Reaction in Financial Markets within a Behavioral Finance Model with Heterogeneous Agents
Language: English
Abstract:

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 leads to the fact that prices do not adjust instantaneously to new information. Chartists use moving average rules to make their investment decisions. Chartist can transform an underreaction-only scenario into a market with overreaction. The use of long moving average rules might even make the market unstable. Furthermore, noise in financial markets can lead to long time decoupling from fundamental value. 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.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 205
Place of Publication: Darmstadt
Uncontrolled Keywords: Heterogeneous Agent Model - stock market - under and overreaction to news - moving average rules - financial stability
Classification DDC: 300 Sozialwissenschaften > 330 Wirtschaft
Divisions: 01 Law and Economics
01 Law and Economics > Volkswirtschaftliche Fachgebiete
01 Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
Date Deposited: 08 Sep 2011 13:10
Last Modified: 26 Jan 2016 14:57
URN: urn:nbn:de:tuda-tuprints-47213
Additional Information:

JEL classification: G14 - D84 - C62 - C15

Additional Information:

JEL classification: G14 - D84 - C62 - C15

URI: http://tuprints.ulb.tu-darmstadt.de/id/eprint/4721
Export:
Actions (login required)
View Item View Item

Downloads

Downloads per month over past year