Dynamic Effects of Increasing Heterogeneity in Financial Markets
AbstractDeveloping 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, ).
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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 111.
Length: 17 pages
Date of creation: 2007
Date of revision: 2007
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-30 (All new papers)
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