Itchy Feet vs Cool Heads: Flow of Funds in an Agent-Based Financial Market

37 Pages Posted: 30 Jun 2015

See all articles by Jan Palczewski

Jan Palczewski

University of Leeds - School of Mathematics

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Tongya Wang

University of Oxford - Said Business School

Date Written: June 2015

Abstract

Investors tend to move funds when they are unhappy with their current portfolio managers' performance. We study the effect of the size of this flow of funds in an agent-based model of the financial market. The model combines the discrete choice approach from agent-based modelling, where all capital is mobile, with the evolutionary finance framework where all growth is endogenous. Our results show that a small amount of freely flowing capital can have a huge impact on the market dynamics. In contrast to the standard model, moreover, clients' intensity of choice has a strong effect even when they exhibit only a very mild recency bias.

Keywords: Portfolio management, agent-based financial market, evolutionary finance, flow of funds

JEL Classification: D53, G18, C63

Suggested Citation

Palczewski, Jan and Schenk-Hoppé, Klaus Reiner and Wang, Tongya, Itchy Feet vs Cool Heads: Flow of Funds in an Agent-Based Financial Market (June 2015). Available at SSRN: https://ssrn.com/abstract=2624975 or http://dx.doi.org/10.2139/ssrn.2624975

Jan Palczewski

University of Leeds - School of Mathematics ( email )

Leeds, LS2 9JT
United Kingdom

HOME PAGE: http://www.maths.leeds.ac.uk/~jp

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Tongya Wang (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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