How Chartist Memory Affects Wealth in a Heterogeneous-Agent Model

Summary

The document presents a multi-asset model with two investor types: fundamentalists, who respond to perceived differences between stock prices and fundamentals, and chartists, who use price trends. Both groups make investment decisions by maximizing constant relative risk aversion utility. The authors report that the calibrated model reproduces market features including fat-tailed returns and persistent volatility, then use it to examine how strategy parameters relate to each group’s share of wealth.

Longer exponential moving average periods for chartists are associated with higher wealth shares, although the effect levels off when the periods become sufficiently long. Changes in the mean reversion parameter have no clear effect on either group’s wealth share. The excerpt interprets this as suggesting that the intensity of fundamentalists’ response to price errors does not alter their long-run wealth share. These findings come from a calibrated model; the excerpt gives no calibration details, robustness checks, or evidence that the simulated relationships hold across real markets.

Key ideas

• The model represents fundamentalist and chartist investors across multiple assets using CRRA utility.
• The calibrated model is reported to reproduce fat-tailed returns and persistent volatility.
• Chartists’ wealth shares tend to rise as their exponential moving average periods lengthen, with the effect eventually saturating.
• The mean reversion parameter has no clear reported impact on either type’s wealth share.
• The findings are model-based, and the excerpt provides no calibration or robustness details.

Tags

# Wealth share analysis with "fundamentalist/chartist" heterogeneous agents


# Wealth share analysis with "fundamentalist/chartist" heterogeneous agents









We build a multiassets heterogeneous agents model with fundamentalists and chartists, who make investment decisions by maximizing the constant relative risk aversion utility function. We verify that the model can reproduce the main stylized facts in real markets, such as fat-tailed return distribution and long-term memory in volatility. Based on the calibrated model, we study the impacts of the key strategies' parameters on investors' wealth shares. We find that, as chartists' exponential moving average periods increase, their wealth shares also show an increasing trend. This means that higher memory length can help to improve their wealth shares. This effect saturates when the exponential moving average periods are sufficiently long. On the other hand, the mean reversion parameter has no obvious impacts on wealth shares of either type of traders. It suggests that no matter whether fundamentalists take moderate strategy or aggressive strategy on the mistake of stock prices, it will have no different impact on their wealth shares in the long run.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.