We consider a prediction market in which traders have heterogeneous prior beliefs in probabilities. In the two-state case, we derive necessary and sufficient conditions so that the prediction market is accurate in the sense that the equilibrium state price equals the mean probabilities of traders’ beliefs. We also provide a necessary and sufficient condition for the well documented favorite-lon...

The paper analyzes the dynamics in a model with heterogeneous agents trading in simple markets under different trading protocols. Starting with the analytically tractable model of [4], we build a simulation platform with the aim to investigate the impact of the trading rules on the agents’ ecology and aggregate time series properties. The key behavioral feature of the model is the presence of a...

Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes and effects. This review and essay evaluates some of the hypotheses offered to explain the market crashes that often follow asset price bubbles. Starting fr...

This paper intends to contribute the literature on determinants of exchange rate fluctuations. We build an agent-based model inspired by behavioral finance and empirical surveys about behavior foreign professionals. In our artificial economy, traders allocate their wealth across heterogeneous assets based expectations interest Fundamentalists use both fundamental technical signals, but overweig...

In this study we rethought efficient market hypothesis from a viewpoint of complexity of market participants’ prediction methods and market price’s dynamics, and examined the hypothesis using simulation results of our artificial market model. As a result, we found the two difference from the hypothesis. (a) Complexity of markets was not fixed, but changed with complexity of agents. (b) When age...