Heterogeneous Fundamentalists and Imitative Processes
AbstractDeveloping 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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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 104.
Length: 16 pages
Date of creation: Nov 2006
Date of revision: Nov 2006
mathematical economics; chaos; heterogeneous interacting agents; financial markets.;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
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