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Bifurcation Routes to Volatility Clustering

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  • Gaunersdorfer, A.

    ()
    (University of Vienna)

  • Hommes, C.H.

    ()
    (Universiteit van Amsterdam)

  • Wagener, F.O.O.

    ()
    (Universiteit van Amsterdam)

Abstract

A simple asset pricing model with two types of adaptively learning traders,fundamentalists and technical analysts, is studied. Fractions of these tradertypes, which are both boundedly rational, change over time according toevolutionary learning, with technical analysts conditioning their forecastingrule upon deviations from a benchmark fundamental. Volatility clustering arisesendogenously in this model. Two mechanisms are proposed as an explanation. Thefirst is coexistence of a stable steady state and a stable limit cycle, whicharise as a consequence of a so-called Chenciner bifurcation of the system. Thesecond is intermittency and associated bifurcation routes to strange attractors.Both phenomena are persistent and occur generically in nonlinearmulti-agent evolutionary systems.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 00-04.

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Date of creation: 2000
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Handle: RePEc:ams:ndfwpp:00-04

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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References

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  1. J. Doyne Farmer & Shareen Joshi, 2000. "The price dynamics of common trading strategies," Papers cond-mat/0012419, arXiv.org.
  2. Pintus, Patrick & Sands, Duncan & de Vilder, Robin, 2000. "On the transition from local regular to global irregular fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 247-272, February.
  3. Cars H. Hommes, 2001. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," Tinbergen Institute Discussion Papers 01-014/1, Tinbergen Institute.
  4. Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
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  6. Gaunersdorfer, A. & Hommes, C.H., 2000. "A Nonlinear Structural Model for Volatility Clustering," CeNDEF Working Papers 00-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  7. repec:att:wimass:9621 is not listed on IDEAS
  8. Cars H. Hommes, 2001. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," Tinbergen Institute Discussion Papers 01-014/1, Tinbergen Institute.
  9. Chiarella, Carl & He, Xue-Zhong, 2002. "Heterogeneous Beliefs, Risk and Learning in a Simple Asset Pricing Model," Computational Economics, Society for Computational Economics, vol. 19(1), pages 95-132, February.
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