Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents

Wang J (2015) Working Papers in Economics and Management; 10-2015.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

Diskussionspapier | Veröffentlicht | Englisch
 
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Abstract / Bemerkung
This paper establishes an agent-based model to describe the dynamic behaviour of the financial market with mutual fund managers and investors under two types of compensation contracts: asset-based fees and performance-based fees, and using two types of adaptive expectation: trend chaser and contrarian. Our results show that both of trading strategies of trend chaser and contrarian destabilise the market. However, trend chasers always trigger significant fluctuations, while contrarian traders bring along the slight up and down oscillations. The types of compensation contracts change the behaviour of contrarian traders, but have no influence to trend chaser. We also find that inertia parameter decrease the stability of market and induce market price to be underestimated. In particular, the heterogenous analysis under different compensation contracts shows that asset maximisers dominate the whole market and produce higher returns, which can be used to explain the current situation in real market that most of mutual funds choose asset-based contract. Moreover, the coexistence of two compensation schemes may amplify market fluctuations and create bubbles.
Stichworte
mutual fund manager; compensation contract; bounded rationality; adaptive expectation; nonlinear dynamics; risk taking behaviour; heterogenity
Erscheinungsjahr
2015
Band
10-2015
Seite(n)
37
ISSN
2196-2723
Page URI
https://pub.uni-bielefeld.de/record/2915574

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Wang J. Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents. Working Papers in Economics and Management. Vol 10-2015. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2015.
Wang, J. (2015). Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents (Working Papers in Economics and Management, 10-2015). Bielefeld: Bielefeld University, Department of Business Administration and Economics. doi:10.4119/unibi/2915574
Wang, J. (2015). Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents. Working Papers in Economics and Management, 10-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
Wang, J., 2015. Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents, Working Papers in Economics and Management, no.10-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
J. Wang, Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents, Working Papers in Economics and Management, vol. 10-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015.
Wang, J.: Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents. Working Papers in Economics and Management, 10-2015. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2015).
Wang, Juanxi. Incentives and Adaptive Expectations in a Financial Market with Heterogenous Agents. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015. Working Papers in Economics and Management. 10-2015.
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