Abstract
Speculation in asset market is modelled as a stochastic betting game played by finite number of players and repeated infinite times. With stochastic asset return and unkown quality of public signal, a generic adaptive learning rule is proposed and the corresponding evolutionary dynamics is analyzed. The impact of historical events on players' belief decays over time. It is proved to be a robust approach to adapt to stochastic regime shifts in the market. The market dynamics has characteristics, i.e. endogenous boom-bust cycle, positive correlation in return and volume, and negative first order autocorrelation in return series, commonly observed in financial market but inexplicable by conventional rational expectations theory.
Keywords
BustEconomicsSpeculationAutocorrelationFinancial marketAsset (computer security)EconometricsRational expectationsOrder (exchange)BoomFinancial economicsMathematical economicsMicroeconomicsMathematicsComputer scienceFinanceEngineeringStatistics
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Publication Info
- Year
- 2005
- Type
- preprint
- Citations
- 29
- Access
- Closed
External Links
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Cite This
Fan Wang
(2005).
Beat The Market.
RePEc: Research Papers in Economics
.