Explaining the Facts with Adaptive Agents: The Case of Mutual Fund Flows

Posted: 20 Dec 1998

See all articles by Martin Lettau

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Abstract

This paper studies portfolio decisions of boundedly rational agents in a financial market. Learning is modelled via a genetic algorithm. Learning as modelled in this paper leads agents to hold too much risk as compared to the optimal portfolio of rational investors. Moreover, learning agent exhibit an asymmetric response after positve and negative returns where the portfolio adjustment is more pronounced after negative returns. It is demonstrated that investors in mutual funds show the same investment patterns as the learning agents in the model. A steady-state version of the model is able to match the mutual fund data closely.

JEL Classification: G11

Suggested Citation

Lettau, Martin, Explaining the Facts with Adaptive Agents: The Case of Mutual Fund Flows. Available at SSRN: https://ssrn.com/abstract=6100

Martin Lettau (Contact Author)

University of California - Haas School of Business ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
5106436349 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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