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Financial crises and regime-dependent dynamics

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  • Huang, Weihong
  • Zheng, Huanhuan

Abstract

Generalized with the regime-dependent beliefs and regime-switching dynamics, the simple market-maker framework established by Day and Huang (1990) is capable to model all types of crises, that is, sudden crisis, disturbing crisis and smooth crisis, and to offer economic and dynamic justifications on how and why these crises appear. Moreover, the model simulations verify the salient qualitative and statistical properties commonly observed in the real financial data such as fat tails, volatility clustering, long range dependence, leverage effect and other stylized facts. Additionally, the model replicates the various chart patterns widely applied in the technical analysis.

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Bibliographic Info

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

Volume (Year): 82 (2012)
Issue (Month): 2 ()
Pages: 445-461

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Handle: RePEc:eee:jeborg:v:82:y:2012:i:2:p:445-461

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

Related research

Keywords: Financial crisis; Regime-dependent belief; Regime switching; Power-law distribution; Long-range dependence;

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References

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  2. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
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Citations

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Cited by:
  1. Tramontana, Fabio & Westerhoff, Frank & Gardini, Laura, 2012. "The bull and bear market model of Huang and Day : Some extensions and new results," BERG Working Paper Series 89, Bamberg University, Bamberg Economic Research Group.
  2. Weihong HUANG & Wanying Wang, 2012. "Price-Volume Relations in Financial Market," Economic Growth centre Working Paper Series 1209, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  3. Huang, Weihong & Chen, Zhenxi, 2014. "Modeling regional linkage of financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 18-31.

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