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Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism

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  • Ahmad K. Naimzada
  • Giorgio Ricchiuti

Abstract

type="main" xml:lang="en"> In contrast with the canonical models of financial markets with heterogeneous agents,, Naimzada and Ricchiuti, ( , ) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability. In this paper, differently from, Naimzada and Ricchiuti, ( , ), we assume that the market maker employs a so-called multiplicative price mechanism (Tuinstra, ; Zhu et al., ). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.

Suggested Citation

  • Ahmad K. Naimzada & Giorgio Ricchiuti, 2014. "Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 43(3), pages 233-247, November.
    • Handle: RePEc:bla:ecnote:v:43:y:2014:i:3:p:233-247
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    Cited by:

    1. Daniele Giachini & Shabnam Mousavi & Matteo Ottaviani, 2025. "From zero-intelligence to Bayesian learning: the effect of rationality on market efficiency," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 20(3), pages 659-676, July.
    2. Giovanni Campisi & Silvia Muzzioli & Fabio Tramontana, 2021. "Uncertainty about fundamental, pessimistic and overconfident traders: a piecewise-linear maps approach," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(2), pages 707-726, December.
    3. F. Cavalli & A. Naimzada & M. Pireddu, 2017. "An evolutive financial market model with animal spirits: imitation and endogenous beliefs," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1007-1040, November.
    4. Carraro, Alessandro & Ricchiuti, Giorgio, 2015. "Heterogeneous fundamentalists and market maker inventories," Chaos, Solitons & Fractals, Elsevier, vol. 79(C), pages 73-82.

    More about this item

    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

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