Kiel Working Papers, Kiel Institute for World Economics
No 1595:
Switching Rates and the Asymptotic Behavior of Herding Models
Albrecht Irle, Jonas Kauschke, Thomas Lux and Mishael Milakovic
Abstract: Markov chains have experienced a surge of economic
interest in the form of behavioral agent-based models that aim at
explaining the statistical regularities of financial returns. We review
some of the relevant mathematical facts and show how they apply to
agent-based herding models, with the particular goal of establishing their
asymptotic behavior because several studies have pointed out that the
ability of such models to reproduce the stylized facts hinges crucially on
the size of the agent population (typically denoted by n), a phenomenon
that is also known as n-dependence. Our main finding is that
n-(in)dependence traces back to both the topology and the velocity of
information transmission among heterogeneous financial agents
Keywords: Markov chains, agent-based finance, herding, N-dependence; (follow links to similar papers)
JEL-Codes: C10,; D84,; D85,; G19; (follow links to similar papers)
16 pages, February 2010
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