Contagion effects in a chartist–fundamentalist model with time delays
AbstractIn this paper two models of speculative markets are developed to study the effects of feedback mechanisms in financial markets. In the first model, a crash market model couples a linear chartist–fundamentalist model with time delays with a log-periodic market index I(t) through direct coupling. Numerical solutions to the model show that asset prices exhibit significant persistence as a result of the coupling to the log-periodic market index. An extension to include endogenous wealth dynamics shows that the chartists benefit from the persistent dynamics induced by the coupling. The second model is a two-asset model represented by a 2-dimensional delay-differential equation. Asset one price exhibits limit cycle dynamics while in the second market asset prices follow stable damped oscillations. The markets are coupled through a diffusive coupling term. Solutions to the coupled model show that the dynamics of asset two changes fundamentally with the price now exhibiting a limit cycle. The stable converging dynamics is replaced with limit cycle oscillations around the fundamental.
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Bibliographic InfoArticle provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.
Volume (Year): 382 (2007)
Issue (Month): 1 ()
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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/
Delay-differential equations; Financial crises; Speculative markets;
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