Informational differences and learning in an asset market with boundedly rational agents

The price formation mechanism in an asset market with boundedly rational agents can be viewed as a lter acting on incoming news about economic fundamentals such as future div-idends. Here we study the properties of an asset pricing market lter obtained under some simple behavioral assumptions, and examine the resulting dynamical structure of the uctu-ations of the market price around the time-varying underlying fundamental reference price. The starting point is an asset pricing model in which agents can choose among two differ-ent degrees of information on fundamentals. At the same time agents are also learning the parameter of the dividend generating process. This leads to prices that deviate substantially and persistently from the fundamental value in the short run but stay close to it in the long run. In particular, prices have a time-varying nonlinear mean reverting dynamics which we show to be related to agents ' interaction triggered by informational differences