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Heterogeneous Fundamentalists and Imitative Processes

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Author Info

  • Ahmad Naimzada

    ()
    (Department of Economics, University of Milan-Bicocca)

  • Giorgio Ricchiuti

    ()
    (Department of Economics, University of Florence)

Abstract

Developing a model with a switching mechanism, we show how complex dynamics can be generated even though heterogeneity arises among agents with the same trading rules (fundamentalists). We assume that there are two experts which are imitated by other operators. We show that (i) market instability and periodic, or even, chaotic price fluctuations can be generated; (ii) conditions exist under which an expert can drive another expert out of the market; (iii) two experts can survive when the dynamic system either generates a period doubling bifurcation around an attractor or when an homoclinic bifurcation leads to the merging of the two attractors (i.e. Dieci et al., 2001); (iv) a central role is played by the reaction to misalignment of both market makers and agents.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper104.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 104.

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Length: 16 pages
Date of creation: Nov 2006
Date of revision: Nov 2006
Handle: RePEc:mib:wpaper:104

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Related research

Keywords: mathematical economics; chaos; heterogeneous interacting agents; financial markets.;

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References

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  1. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 299-329, December.
  2. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  3. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  4. Taylor, Mark P. & Allen, Helen, 1992. "The use of technical analysis in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 304-314, June.
  5. Carl Chiarella & Roberto Dieci & Laura Gardini, 2001. "Speculative Behaviour and Complex Asset Price Dynamics," Research Paper Series 49, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Taisei Kaizoji, 2003. "Speculative bubbles and fat tail phenomena in a heterogeneous agent model," Papers nlin/0312040, arXiv.org.
  7. 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.
  8. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
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Citations

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Cited by:
  1. Antoci, Angelo & Naimzada, Ahmad & Sodini, Mauro, 2009. "Strategic interactions and heterogeneity in a overlapping generations model with negative environmental externalities," MPRA Paper 18221, University Library of Munich, Germany.
  2. Ahmad Naimzada & Marina Pireddu, 2014. "Real and financial interacting oscillators: a behavioral macro-model with animal spirits," Working Papers 268, University of Milano-Bicocca, Department of Economics, revised Feb 2014.
  3. Ahmad K Naimzada & Giorgio Ricchiuti, 2013. "Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism," Working Papers - Economics wp2013_03.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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