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Dynamic instability in generic model of multi-assets markets

Listed author(s):
  • Marsili, Matteo
  • Raffaelli, Giacomo
  • Ponsot, Benedicte
Registered author(s):

    We introduce a generic model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This captures the fact that financial correlation determine the optimal portfolio but are affected by investment based on it. We show that, under very general conditions, such a feedback on correlations gives rise to an instability when the volume of investment exceeds a critical value. Close to the critical point the model exhibits dynamical correlations very similar to those observed in empirical data.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(09)00036-0
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    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 33 (2009)
    Issue (Month): 5 (May)
    Pages: 1170-1181

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    Handle: RePEc:eee:dyncon:v:33:y:2009:i:5:p:1170-1181
    Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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    1. Kirchler, Michael & Huber, Jurgen, 2007. "Fat tails and volatility clustering in experimental asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 1844-1874, June.
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    10. Anufriev, M. & Hommes, C.H., 2007. "Evolution of Market Heuristics," CeNDEF Working Papers 07-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    11. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen, 2003. "Multivariate GARCH models: a survey," CORE Discussion Papers 2003031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    16. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
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