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Dynamic Effects of Increasing Heterogeneity in Financial Markets

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Author Info
Ahmad Naimzada () (Department of Economics, University of Milan-Bicocca)
Giorgio Ricchiuti

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Abstract

Developing a model in which heterogeneity arises among two groups of fundamentalists that follow gurus, we focus on the dynamic effects of increasing heterogeneity. We show that an increasing degree of heterogeneity leads firstly (i) to insurgence of a pitchfork bifurcation and, secondly (ii) generates, together with a larger reaction to misalignment of both market makers and agents, the appearance of a periodic, or even, chaotic, price fluctuation (trough an homoclinic bifurcation, [1]).

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper111.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 111.

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Length: 17 pages
Date of creation: 2007
Date of revision: 2007
Handle: RePEc:mib:wpaper:111

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Related research
Keywords: mathematical economics; chaos; heterogeneous interacting agents; financial markets;

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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This page was last updated on 2009-12-6.

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