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Asset Pricing Model with Heterogeneous Agents: the Wealth Dynamics



We develop an adaptive model which characterizes the evolution of wealth distribution when agents switch between different trading strategies. The wealth of each group is updated not only as a consequence of portfolio growth of agents adopting the relative strategy, but also due to the flow of agents coming from the other group. This switching mechanism is investigated in a Walrasian scenario and under a growing dividend process. A stationary dynamic model is obtained in terms of excess return, wealth and agent proportions, able to explain wealth distribution among agents in the long run

Topics: asset pricing, wealth dynamics, switching mechanisms, long run dynamics, trapping sets
Publisher: Academic Publications, Ltd
Year: 2012
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