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Competitions hatch butterfly attractors in foreign exchange markets

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  • Jin, Yu Ying

Abstract

Chaos in foreign exchange markets is a common issue of concern in the study of economic dynamics. In this work, we mainly investigate the competition effect on chaos in foreign exchange markets. As one of the main economic structures in the globalization process, competition between two target exchange rates with the same base currency forms a simple competitive exchange rate relation, where each exchange rate follows the chaotic model of De Grauwe (Exchange Rate Theory-Chaotic Models of Foreign Exchange Markets, Blackwell, Oxford, Cambridge, MA, 1993). The main discovery is, while each exchange rate is in its non-chaotic parameter regions, the effect of competition will “hatch” butterfly-like chaotic attractors in the competitive market. The positive Lyapunov exponent in the market explains the reason why chaos occurs.

Suggested Citation

  • Jin, Yu Ying, 2005. "Competitions hatch butterfly attractors in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 380-388.
    • Handle: RePEc:eee:phsmap:v:348:y:2005:i:c:p:380-388
    DOI: 10.1016/j.physa.2004.09.025
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    Cited by:

    1. John Francis Diaz & Jo-Hui Chen, 2017. "Testing for Long-memory and Chaos in the Returns of Currency Exchange-traded Notes (ETNs)," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(4), pages 1-2.
    2. Dibeh, Ghassan, 2006. "Target zone dynamics where the fundamental follows a SDE with periodic forcing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 363(2), pages 437-445.

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