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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

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 Function: First version, 2007
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Bibliographic 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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Keywords: mathematical economics; chaos; heterogeneous interacting agents; financial markets;

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