Modeling the Effect of Loss Averse Bias on Return Rate and Stock Price Dynamics (Application of Agent-Based Modeling in Behavioral Finance)

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Raki Moloud; MEHRARA MOHSEN; Abasinejad Hosein; SOURI ALI

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Paper Information

Journal: FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES) Year:2020 | Volume:13 | Issue:45 Page(s): 165-180

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Title

Modeling the Effect of Loss Averse Bias on Return Rate and Stock Price Dynamics (Application of Agent-Based Modeling in Behavioral Finance)

Author(s)

Raki Moloud | MEHRARA MOHSEN | Abasinejad Hosein | SOURI ALI | Issue Writer Certificate

Keywords

Agent-based modeling

financial stylized facts

Behavioral Finance

behavior bias

artificial stock market

Abstract

Standard asset pricing models based on rational expectations and homogeneity have problems explaining the complex and volatile nature of financial markets. The heterogeneity in expectations can lead to market instability and complicate dynamics of prices, which are driven by endogenous market forces. Our aim is to point out that the investors’ irrationality explains various numbers of financial anomalies, especially the phenomena that traditional financials models have never been able to explain. using a Behavioral Finance approach and an agent-based model we examine the dynamics of stock price fluctuations and their rates of return in an artificial market composed of fundamentalists and non-fundamentalists with loss-adverse bias. our goal is to point out a posibility that loss-adverse feature of investors explains vast number of financial stylized fact and plays an important role in price formation of financial markets. The results of intensive analysis indicate that the existence of agents having heterogeneous beliefs and preferences has provided a better understanding of price dynamics in the financial market.

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APA: Copy

Raki, Moloud, MEHRARA, MOHSEN, Abasinejad, Hosein, & SOURI, ALI. (2020). Modeling the Effect of Loss Averse Bias on Return Rate and Stock Price Dynamics (Application of Agent-Based Modeling in Behavioral Finance). FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), 13(45 ), 165-180. SID. https://sid.ir/paper/953962/en

Vancouver: Copy

Raki Moloud, MEHRARA MOHSEN, Abasinejad Hosein, SOURI ALI. Modeling the Effect of Loss Averse Bias on Return Rate and Stock Price Dynamics (Application of Agent-Based Modeling in Behavioral Finance). FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES)[Internet]. 2020;13(45 ):165-180. Available from: https://sid.ir/paper/953962/en

IEEE: Copy

Moloud Raki, MOHSEN MEHRARA, Hosein Abasinejad, and ALI SOURI, “Modeling the Effect of Loss Averse Bias on Return Rate and Stock Price Dynamics (Application of Agent-Based Modeling in Behavioral Finance),” FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), vol. 13, no. 45 , pp. 165–180, 2020, [Online]. Available: https://sid.ir/paper/953962/en

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