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Multi-Asset Market Dynamics

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  • Frank Westerhoff

Abstract

This paper explores multiasset market dynamics. We consider a limited number of markets on which two types of agents are active. Fundamentalists specialize in a certain market to gather expertise. Chartists may switch between markets since they use simple extrapolative methods. Specifically, chartists prefer markets that display price trends but that are not too misaligned. The interaction between the traders causes complex dynamics. Even in the absence of random shocks, our artificial markets mimic the behavior of actual asset markets closely. Our model also offers reasons for the high degree of comovements in stock prices observed empirically.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 88.

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Date of creation: 01 Aug 2003
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Handle: RePEc:sce:scecf3:88

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Related research

Keywords: heterogeneous agents; technical and fundamental analysis; asset price dynamics; comovements in stock prices;

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References

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  1. C. H. Hommes, 2001. "Financial markets as nonlinear adaptive evolutionary systems," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 149-167.
  2. Shinji Takagi, 1991. "Exchange Rate Expectations: A Survey of Survey Studies," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 156-183, March.
  3. J. Doyne Farmer, 1998. "Market Force, Ecology, and Evolution," Research in Economics 98-12-117e, Santa Fe Institute.
  4. J. Doyne Farmer & Shareen Joshi, 2000. "The price dynamics of common trading strategies," Papers cond-mat/0012419, arXiv.org.
  5. Day, R. & Huang, W., 1988. "Bulls, Bears And Market Sheep," Papers m8822, Southern California - Department of Economics.
  6. Frank H. Westerhoff, 2001. "Expectations Driven Distortions in the Foreign Exchange Market," Computing in Economics and Finance 2001 48, Society for Computational Economics.
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  8. LeBaron, Blake, 2001. "Evolution And Time Horizons In An Agent-Based Stock Market," Macroeconomic Dynamics, Cambridge University Press, vol. 5(02), pages 225-254, April.
  9. J. Doyne Farmer, 1999. "Physicists Attempt to Scale the Ivory Towers of Finance," Working Papers 99-10-073, Santa Fe Institute.
  10. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  11. Chen, Shu-Heng & Lux, Thomas & Marchesi, Michele, 2001. "Testing for non-linear structure in an artificial financial market," Journal of Economic Behavior & Organization, Elsevier, vol. 46(3), pages 327-342, November.
  12. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  13. Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2002. "Speculative behaviour and complex asset price dynamics: a global analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 173-197, October.
  14. Shiller, Robert J, 1989. " Comovements in Stock Prices and Comovements in Dividends," Journal of Finance, American Finance Association, vol. 44(3), pages 719-29, July.
  15. Cars H. Hommes, 2001. "Financial Markets as Nonlinear Adaptive Evolutionary Systems," Tinbergen Institute Discussion Papers 01-014/1, Tinbergen Institute.
  16. Lui, Yu-Hon & Mole, David, 1998. "The use of fundamental and technical analyses by foreign exchange dealers: Hong Kong evidence," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 535-545, June.
  17. 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.
  18. Westerhoff, Frank, 2003. "Speculative markets and the effectiveness of price limits," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 493-508, December.
  19. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
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