Learning to forecast, risk aversion, and microstructural aspects of financial stability

Alessio Emanuele Biondo

This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas risk aversion can, counterintuitively, have perverse consequences on it.

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Year of publication:	[2017]
Authors:	Biondo, Alessio Emanuele
Publisher:	Kiel : Kiel Institute for the World Economy
Subject:	Order book \| learning to Forecast \| risk aversion \| agent based models \| Risikoaversion \| Risk aversion \| Theorie \| Theory \| Prognoseverfahren \| Forecasting model \| Agentenbasierte Modellierung \| Agent-based modeling \| Marktmikrostruktur \| Market microstructure \| Lernprozess \| Learning process \| Risiko \| Risk