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On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders

  • Tramontana, Fabio
  • Westerhoff, Frank
  • Gardini, Laura

We develop a financial market model with heterogeneous interacting agents: market makers adjust prices with respect to excess demand, chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion. Moreover, speculators trade asymmetrically in over- and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets. The dynamics of our model is driven by a one-dimensional discontinuous map. Despite the simplicity of our model, analytical, graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 74 (2010)
Issue (Month): 3 (June)
Pages: 187-205

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Handle: RePEc:eee:jeborg:v:74:y:2010:i:3:p:187-205
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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