Prague Economic Papers 2003, 12(2):155-168 | DOI: 10.18267/j.pep.212

Heterogeneous agent model with memory and asset price behaviour

Miloslav Vošvrda, Lukáš Vácha
Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod vodárenskou věží 4, CZ - 180 00 Prague 8 (e-mail: vosvrda@utia.cas.cz; lvacha@cbox.cz).

The efficient markets hypothesis provides a theoretical basis on which technical trading rules (TTRs) are rejected as a viable trading strategy. TTRs, providing a signal to the user when to buy or sell asset based on such price patterns, should not be useful for generating excess returns. Technical traders tend to put little faith in strict efficient markets hypothesis. This approach relies on heterogeneity in the agent information and subsequent decisions either as fundamentalists or as technical traders. Switching between the technical trader's and fundamentalist's strategy is a basis of the cycle behaviour. This event is analysed by the Brock and Hommes (BH) model. Moreover, the memory case is added to this model because BH model was the memory-less model. This branch consists of a behaviour analysis among fundamentalists and technical traders. Here is a basis for endogenous source of the real business cycle.

Keywords: efficient markets hypothesis, technical trading rules, fundamentalists, technical traders, chartists and contrarians, heterogeneous agent model with memory, asset price behaviour
JEL classification: C61, D84, G14

Published: January 1, 2003  Show citation

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Vošvrda, M., & Vácha, L. (2003). Heterogeneous agent model with memory and asset price behaviour. Prague Economic Papers, 12(2), 155-168. doi: 10.18267/j.pep.212
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