Bubbles and crashes: Gradient dynamics in financial markets

Journal of Economic Dynamics and Control

Volumn 33, Issue 4, 2009, Pages 922-937

  Friedman, Daniel ^a   Abraham, Ralph ^b  

^a UNIVERSITY OF CALIFORNIA   (United States)

^b University of California Santa Cruz   (United States)

Author keywords

Agent based models; Bubbles; Constant gain learning; Escape dynamics; Time varying risk premium

Indexed keywords

EID: 59749096233     PISSN: 01651889     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jedc.2008.10.006     Document Type: Article

References (45)

1. Aoki M. New Approaches to Macroeconomic Modeling: Evolutionary Stochastic Dynamics, Multiple Equilibria, and Externalities as Field Effects (2004), Cambridge University Press, New York
2. Arthur W.B., Holland J.H., LeBaron B., Palmer R., and Tayler P. Asset pricing under endogenous expectations in an artificial stock market. In: Arthur W.B. (Ed). The Economy as an Evolving Complex System (1997), Addison-Wesley, Reading, MA
3. Blanchard, O.J., Watson, M.W., 1982. Bubbles, rational expectations and financial markets. NBER Working Paper, No. 945.
4. Bollen N.P.B., and Busse J.A. Short-term persistence in mutual fund performance. Review of Financial Studies 18 2 (2005) 569-597
5. Brock W.A., and Hommes C.H. Heterogeneous beliefs and routes to chaos in a simple asset pricing model. Journal of Economic Dynamics and Control 22 8-9 (1998) 1235-1274
6. Brock W.A., Hommes C.H., and Wagener F. Evolutionary dynamics in markets with many trader types. Journal of Mathematical Economics 41 1-2 (2005) 7-42
7. Camerer, C.F., Loewenstein, G., Rabin, R. (Eds.), 2003. Advances in Behavioral Economics, Princeton University Press, Princeton, NJ.
8. Chen J., Hong H., Huang M., and Kubik J.D. Does fund size erode mutual fund performance? The role of liquidity and organization. The American Economic Review 94 5 (2004) 1276-1302
9. Cheung Y.-W., and Friedman D. Individual learning in normal form games: some laboratory results. Games and Economic Behavior 19 1 (1997) 46-76
10. Chevalier J., and Ellison G. Risk taking by mutual funds as a response to incentives. Journal of Political Economy 105 6 (1997) 1167-1200
11. Cho I.K., Williams N., and Sargent T.J. Escaping nash inflation. Review of Economic Studies 69 (2002) 1-40
12. Copeland, T.E., Weston, J.F., Shastri, K., 2005. Financial Theory and Corporate Policy, fourth ed. Pearson/Addison Wesley, New York.
13. De Fontnouvelle P. Information dynamics in financial markets. Macroeconomic Dynamics 4 (2000) 139-169
14. DeLong J.B., Schleifer A., Summers L.H., and Waldmann R.J. Positive feedback investment strategies and destabilizing rational speculation. Journal of Finance 45 (1990) 379-395
15. Del Guercio D., and Tkac P.A. The determinants of the flow of funds of managed portfolios: mutual funds versus pension funds. Journal of Financial and Quantitative Analysis 37 (2002) 523-557
16. Egenter E., Lux T., and Stauffer D. Finite-size effects in Monte Carlo simulations of two stock market models. Physica A 268 1 (1999) 250-256
17. Feller, W., 1971. An Introduction to Probability Theory and its Applications. Wiley Series in Probability and Mathematical Statistics, vol. 2, third ed. Wiley, New York.
18. Freidlin M.I., and Wentzell A.D. Random Perturbations of Dynamic System (1984), Springer, New York
19. Friedman D., and Aoki M. Inefficient information aggregations as a source of asset price bubbles. Bulletin of Economics Research 44 (1992) 251-279
20. Friedman D., and Ostrov D. Conspicuous consumption dynamics. Games and Economic Behavior 64 1 (2008) 121-145
21. Friedman, D., Yellin, J., 1997. Evolving landscapes for population games, University of California, Santa Cruz draft manuscript, available at: 〈http://www.vismath.org/research/landscapedyn/models/articles/〉.
22. Fudenberg D., and Levine D.K. The Theory of Learning in Games (1998), MIT Press, Cambridge, MA
23. Garber P. Tulipmania. Journal of Political Economy 97 3 (1989) 535-560
24. Holland J.H. Adaptation in Natural and Artificial Systems (1975), University of Michigan Press, Ann Arbor
25. Hommes C.H. Heterogeneous agent models in economics and finance. In: Tesfatsion L., and Judd K. (Eds). Handbook of Computational Economics, Volume 2: Agent-Based Computational Economics (2006), Elsevier, New York
26. Kandori M., Mailath G.J., and Rob R. Learning, mutation, and long run equilibria in games. Econometrica 61 1 (1993) 29-56
27. Karceski J. Returns-chasing behavior, mutual funds, and beta's death. Journal of Financial and Quantitative Analysis 37 (2002) 559-594
28. Keynes J.M. The General Theory of Employment, Interest and Money (1936), Macmillan, London
29. Kindleberger C.P. Manias, Panics and Crashes: A History of Financial Crises (1978/1989/2000), Basic Books, New York
30. LeBaron B. Agent-based computational finance. In: Tesfatsion L., and Judd K. (Eds). Handbook of Computational Economics, Volume 2: Agent-Based Computational Economics (2006), Elsevier, New York
31. LeRoy S.F. Rational exuberance. Journal of Economic Literature 42 3 (2004) 783-804
32. Levy H., and Markowitz H.M. Approximating expected utility by a function of mean and variance. American Economic Review 69 3 (1979) 308-317
33. Mackay, C., 1841. Extraordinary popular delusions and the madness of crowds, (reprinted in Wiley's 1996 investment classics volume).
34. Minsky H.P. John Maynard Keynes (1975), Columbia University Press, New York
35. Minksy, H.P., 1982. Can 'IT' Happen Again? Essays on Instability and Finance. M.E. Sharpe Inc., NY.
36. Penso de la Vega, J., 1688. Confusion e confusions (reprinted in Wiley's 1996 investment classics volume).
37. Sargent T. The Conquest of American Inflation (1999), Princeton University Press, New York
38. Shefrin H. Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing (2002), Oxford University Press, Oxford
39. Sirri E.R., and Tufano P. Costly search and mutual fund flows. Journal of Finance 53 (1998) 575-603
40. Sonnenschein H. Price dynamics based on the adjustment of firms. American Economic Review 72 5 (1982) 1088-1096
41. Tirole J. On the possibility of speculation under rational expectations. Econometrica 50 5 (1982) 1163-1181
42. Williams, N., 2004. Escape dynamics in learning models. Manuscript, Princeton University, Economics Department.
43. Young P. The evolution of conventions. Econometrica 61 1 (1993) 57-84
44. Youssefmir M., Huberman B.A., and Hogg T. Bubbles and market crashes. Computational Economics 12 2 (1998) 97-114
45. Zeeman E.C. On the unstable behavior of the stock exchanges. Journal of Mathematical Economics 1 1 (1974) 39-44