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On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders

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  • Tramontana, Fabio
  • Westerhoff, Frank
  • Gardini, Laura

Abstract

We develop a financial market model with heterogeneous interacting agents: market makers adjust prices with respect to excess demand, chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion. Moreover, speculators trade asymmetrically in over- and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets. The dynamics of our model is driven by a one-dimensional discontinuous map. Despite the simplicity of our model, analytical, graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 74 (2010)
Issue (Month): 3 (June)
Pages: 187-205

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Handle: RePEc:eee:jeborg:v:74:y:2010:i:3:p:187-205

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Financial markets Heterogeneous agents Technical and fundamental analysis Nonlinear dynamics Discontinuous map Bifurcation analysis;

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Citations

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Cited by:
  1. Mihaela Nicolau, 2010. "Practitioners' Tools in Analysing Financial Markets Evolution," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 3(3), pages 83-104, August.
  2. Ingrid Kubin & Laura Gardini, 2012. " Border Collision Bifurcations in Boom and Bust Cycles," Department of Economics Working Papers wuwp137, Vienna University of Economics, Department of Economics.
  3. Fabio Tramontana & Laura Gardini & Frank Westerhoff, 2011. "Heterogeneous Speculators and Asset Price Dynamics: Further Results from a One-Dimensional Discontinuous Piecewise-Linear Map," Computational Economics, Society for Computational Economics, vol. 38(3), pages 329-347, October.
  4. Dick, Christian D. & Menkhoff, Lukas, 2012. "Exchange rate expectations of chartists and fundamentalists," ZEW Discussion Papers 12-026, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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