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Handbook of Financial Markets: Dynamics and Evolution

Book Description

The models of portfolio selection and asset price dynamics in this volume seek to explain the market dynamics of asset prices. Presenting a range of analytical, empirical, and numerical techniques as well as several different modeling approaches, the authors depict the state of debate on the market selection hypothesis. By explicitly assuming the heterogeneity of investors, they present models that are descriptive and normative as well, making the volume useful for both finance theorists and financial practitioners.

* Explains the market dynamics of asset prices, offering insights about asset management approaches
* Assumes a heterogeneity of investors that yields descriptive and normative models of portfolio selections and asset pricing dynamics

Table of Contents

  1. Brief Table of Contents
  2. Table of Contents
  3. Copyright
  4. List of Contributors
  5. Preface
  6. Introduction to the Series
  7. Chapter 1. Thought and Behavior Contagion in Capital Markets
    1. 1.1.. INTRODUCTION
    2. 1.2.. SOURCES OF BEHAVIORAL CONVERGENCE
    3. 1.3.. RATIONAL LEARNING AND INFORMATION CASCADES: BASIC IMPLICATIONS
    4. 1.4.. WHAT IS COMMUNICATED OR OBSERVED?
    5. 1.5.. PSYCHOLOGICAL BIAS
    6. 1.6.. REPUTATION, CONTRACTS, AND HERDING
    7. 1.7.. SECURITY ANALYSIS
    8. 1.8.. HERD BEHAVIOR AND CASCADES IN SECURITY TRADING
    9. 1.9.. MARKETS, EQUILIBRIUM PRICES, AND BUBBLES
    10. 1.10.. CASCADES AND HERDING IN FIRM BEHAVIOR
    11. 1.11.. CONTAGION OF FINANCIAL MEMES
    12. 1.12.. CONCLUSION
  8. BibliographyReferences
  9. Chapter 2. How Markets Slowly Digest Changes in Supply and Demand
    1. 2.1.. INTRODUCTION
    2. 2.2.. MARKET STRUCTURE
    3. 2.3.. INFORMATION, LIQUIDITY, AND EFFICIENCY
    4. 2.4.. LARGE FLUCTUATIONS AND LONG MEMORY OF ORDER FLOW
    5. 2.5.. SUMMARY OF EMPIRICAL RESULTS FOR DIVERSE TYPES OF MARKET IMPACT
    6. 2.6.. THEORY OF MARKET IMPACT
    7. 2.7.. THE DETERMINANTS OF THE BID–ASK SPREAD
    8. 2.8.. LIQUIDITY AND VOLATILITY
    9. 2.9.. ORDER BOOK DYNAMICS
    10. 2.10.. IMPACT AND OPTIMIZED EXECUTION STRATEGIES
    11. 2.11.. TOWARD AN EMPIRICAL CHARACTERIZATION OF A MARKET ECOLOGY
    12. 2.12.. CONCLUSION
    13. APPENDIX 2.1. MECHANICAL VS. NONMECHANICAL IMPACT
    14. APPENDIX 2.2. VOLUME FLUCTUATIONS
    15. APPENDIX 2.3. THE BID–ASK SPREAD IN THE MRR MODEL
  10. BibliographyReferences
  11. Chapter 3. Stochastic Behavioral Asset-Pricing Models and the Stylized Facts
    1. 3.1.. INTRODUCTION
    2. 3.2.. THE STYLIZED FACTS OF FINANCIAL DATA
    3. 3.3.. THE STYLIZED FACTS AS “SCALING LAWS”
    4. 3.4.. BEHAVIORAL ASSET-PRICING MODELS WITH INTERACTING AGENTS
    5. 3.5.. CONCLUSION
  12. BibliographyReferences
  13. Chapter 4. Complex Evolutionary Systems in Behavioral Finance
    1. 4.1.. INTRODUCTION
    2. 4.2.. AN ASSET-PRICING MODEL WITH HETEROGENEOUS BELIEFS
    3. 4.3.. SIMPLE EXAMPLES
    4. 4.4.. MANY TRADER TYPES
    5. 4.5.. EMPIRICAL VALIDATION
    6. 4.6.. LABORATORY EXPERIMENTS
    7. 4.7.. CONCLUSION
    8. APPENDIX 4.1. BIFURCATION THEORY
    9. APPENDIX 4.2. BIFURCATION SCENARIOS
  14. BibliographyReferences
  15. Chapter 5. Heterogeneity, Market Mechanisms, and Asset Price Dynamics
    1. 5.1.. INTRODUCTION
    2. 5.2.. HETEROGENEITY AND MARKET-CLEARING MECHANISMS
    3. 5.3.. PRICE DYNAMICS IMPLIED BY THE CARA UTILITY FUNCTION
    4. 5.4.. PRICE BEHAVIOR AND WEALTH DYNAMICS IMPLIED BY THE CRRA UTILITY
    5. 5.5.. EMPIRICAL BEHAVIOR
    6. 5.6.. HETEROGENEITY IN A DYNAMIC MULTIASSET FRAMEWORK
    7. 5.7.. THE CONTINUOUS STOCHASTIC DYNAMICS OF SPECULATIVE BEHAVIOR
    8. 5.8.. CONCLUSION
  16. BibliographyReferences
  17. Chapter 6. Perfect Forecasting, Behavioral Heterogeneities, and Asset Prices
    1. 6.1.. INTRODUCTION
    2. 6.2.. THE CAPM AS A TWO-PERIOD EQUILIBRIUM MODEL
    3. 6.3.. HETEROGENEOUS BELIEFS AND SOCIAL INTERACTION
    4. 6.3.1.. Temporary Equilibria
    5. 6.3.2.. Perfect Forecasting Rules
    6. 6.3.3.. Systematic and Nonsystematic Risk
    7. 6.3.4.. Selecting Mediators
    8. EXAMPLE 6.1
    9. EXAMPLE 6.2
    10. EXAMPLE 6.3
  18. BibliographyReferences
  19. Chapter 7. Market Selection and Asset Pricing
    1. 7.1.. INTRODUCTION
    2. 7.2.. THE ECONOMY
    3. 7.3.. EQUILIBRIUM ALLOCATIONS AND PRICES
    4. 7.4.. SELECTION
    5. 7.5.. MULTIPLE SURVIVORS
    6. 7.6.. THE LIFE AND DEATH OF NOISE TRADERS
    7. 7.7.. ROBUSTNESS
    8. 7.8.. CONCLUSION
  20. BibliographyReferences
  21. Chapter 8. Rational Diverse Beliefs and Market Volatility
    1. 8.1.. INTRODUCTION
    2. 8.2.. CAN MARKET DYNAMICS BE EXPLAINED BY ASYMMETRIC PRIVATE INFORMATION?
    3. 8.3.. DIVERSE BELIEFS WITH COMMON INFORMATION: THE GENERAL THEORY
    4. EXAMPLE 8.1
    5. EXAMPLE 8.2
    6. 8.4.. EXPLAINING MARKET DYNAMICS WITH SIMULATION MODELS OF DIVERSE BELIEFS
    7. 8.5.. CONCLUSION AND OPEN PROBLEMS
  22. BibliographyReferences
  23. Chapter 9. Evolutionary Finance
    1. 9.1.. INTRODUCTION
    2. 9.2.. EVOLUTIONARY MODELS OF FINANCIAL MARKETS
    3. 9.3.. AN EVOLUTIONARY MODEL WITH SHORT-LIVED ASSETS
    4. 9.4.. AN EVOLUTIONARY STOCK MARKET MODEL
    5. 9.5.. APPLICATIONS
    6. 9.6.. CONTINUOUS-TIME EVOLUTIONARY FINANCE
    7. 9.7.. CONCLUSION
  24. BibliographyReferences
  25. Index
    1. A
    2. B
    3. C
    4. D
    5. E
    6. F
    7. G
    8. H
    9. I
    10. J
    11. K
    12. L
    13. M
    14. N
    15. O
    16. P
    17. Q
    18. R
    19. S
    20. T
    21. U
    22. V
    23. W
    24. X
    25. Y