Updating Wealth in an Asset Pricing Model with Heterogeneous Agents

Abstract

We consider an asset-pricing model with wealth dynamics in a market populated by heterogeneous agents. By assuming that all agents belonging to the same group agree to share their wealth whenever an agent joins the group (or leaves it), we develop an adaptive model which characterizes the evolution of wealth distribution when agents switch between different trading strategies. Two groups with heterogeneous beliefs are considered: fundamentalists and chartists. The model results in a nonlinear three-dimensional dynamical system, which we have studied in order to investigate complicated dynamics and to explain wealth distribution among agents in the long run.