2005/27 | LEM Working Paper Series | |
Wealth-Driven Competition in a Speculative Financial Market: Examples with Maximizing Agents |
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Mikhail Anufriev |
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Keywords | ||
Asset Pricing Model, CRRA Framework, Equilibrium Market Line, Rational Choice, Expected Utility Maximization,
Mean-Variance Optimization, Linear Investment Functions
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JEL Classifications | ||
C62, D84, G12
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Abstract | ||
This paper demonstrates how both quantitative and qualitative results of
general, analytically tractable asset-pricing model in which heterogeneous
agents behave consistently with a constant relative risk aversion
assumption can be applied to the particular case of "linear" investment
choices. In this way it is shown how the framework developed in Anufriev
and Bottazzi (2005) can be used inside the classical setting with demand
derived from utility maximization. Consequently, some of the previous
contributions of the agent-based literature are generalized.
In the course of the analysis of asymptotic market behavior the main attention
is paid to a geometric approach which allows to visualize all possible
equilibria by means of a simple one-dimensional curve referred as the
Equilibrium Market Line. The case of linear (particularly, mean-variance)
investment functions thoroughly analyzed in this paper allows to highlight
those features of the asymptotic dynamics which are common to all types of
the CRRA-investment behavior and those which are specific for the
linear investment functions.
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