Please use this identifier to cite or link to this item: https://doi.org/10.1007/s11403-006-0011-x
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dc.titleImpact of investor's varying risk aversion on the dynamics of asset price fluctuations
dc.contributor.authorYuan, B.
dc.contributor.authorChen, K.
dc.date.accessioned2014-10-16T09:50:59Z
dc.date.available2014-10-16T09:50:59Z
dc.date.issued2006-11
dc.identifier.citationYuan, B.,Chen, K. (2006-11). Impact of investor's varying risk aversion on the dynamics of asset price fluctuations. Journal of Economic Interaction and Coordination 1 (2) : 189-214. ScholarBank@NUS Repository. <a href="https://doi.org/10.1007/s11403-006-0011-x" target="_blank">https://doi.org/10.1007/s11403-006-0011-x</a>
dc.identifier.issn1860711X
dc.identifier.urihttp://scholarbank.nus.edu.sg/handle/10635/98751
dc.description.abstractWhile investors' responses to price changes and their price forecast have been identified as one of the major factors contributing to large price fluctuations in financial markets, our study shows that investors' heterogeneous and dynamic risk aversion (DRA) preferences may play a more critical role in understanding the dynamics of asset price fluctuations. We allow an agent specific and time-dependent risk aversion index in a popular power utility function with constant relative risk aversion to construct our DRA model in which we made two key contributions. We developed an approximated closed-form price setting equation, providing a necessary framework for exploring the impact of various agents' behaviors on the price dynamics. The dynamics of each agent's risk aversion index is modeled by a bounded random walk with a constant variance, and such dynamics is incorporated in the price formula to form our DRA model. We show numerically that our model reproduces most of the "stylized" facts observed in the real data, suggesting that dynamic risk aversion is an important mechanism for understanding the dynamics of the financial market and the resultant financial time series. © Springer-Verlag 2006.
dc.description.urihttp://libproxy1.nus.edu.sg/login?url=http://dx.doi.org/10.1007/s11403-006-0011-x
dc.sourceScopus
dc.subjectAgent-based model
dc.subjectAsset price fluctuation
dc.subjectDynamic risk aversion
dc.subjectDynamics of financial markets
dc.subjectFinancial time series
dc.subjectVolatility clustering
dc.typeConference Paper
dc.contributor.departmentPHYSICS
dc.description.doi10.1007/s11403-006-0011-x
dc.description.sourcetitleJournal of Economic Interaction and Coordination
dc.description.volume1
dc.description.issue2
dc.description.page189-214
dc.identifier.isiutNOT_IN_WOS
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