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A 'bull and bear' model of interacting financial markets. Part I: dynamics in one and two dimensions

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Author Info

  • Fabio Tramontana

    () (Università Politecnica delle Marche & Dipartimento di Economia e Metodi Quantitativi, Università di Urbino)

  • Laura Gardini

    () (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))

  • Roberto Dieci

    () (Università di Bologna)

  • Frank Westerhoff

    () (University of Bamberg)

Abstract

We develop a three-dimensional nonlinear dynamic model in which the stock markets of two countries are linked through the foreign exchange market. Connections are due to the trading activity of heterogeneous speculators. Using analytical and numerical tools, we seek to explore how the coupling of the markets may affect the emergence of 'bull and bear' market dynamics. The dimension of the model can be reduced by restricting investors' trading activity, which enables the dynamic analysis to be performed stepwise, from low-dimensional cases up to the full three-dimensional model. In Part I of our paper, we focus on the one and two-dimensional case.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_08_07.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 0807.

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Length: 38 pages
Date of creation: 2008
Date of revision: 2008
Handle: RePEc:urb:wpaper:08_07

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Web page: http://www.econ.uniurb.it/
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Related research

Keywords: Heterogeneous speculators; bull and bear markets; nonlinear dynamics; homoclinic bifurcations.;

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