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Bifurcation Routes to Volatility Clustering

  • Gaunersdorfer, A.

    ()

    (University of Vienna)

  • Hommes, C.H.

    ()

    (Universiteit van Amsterdam)

  • Wagener, F.O.O.

    ()

    (Universiteit van Amsterdam)

See also the publication 'Bifurcation Routes to Volatility Clustering under Evolutionary Learning' in the 'Journal of Economic Behavior & Organization'. Volume 67(1), pp. 27-47. A simple asset pricing model with two types of adaptively learning traders,fundamentalists and technical analysts, is studied. Fractions of these tradertypes, which are both boundedly rational, change over time according toevolutionary learning, with technical analysts conditioning their forecastingrule upon deviations from a benchmark fundamental. Volatility clustering arisesendogenously in this model. Two mechanisms are proposed as an explanation. Thefirst is coexistence of a stable steady state and a stable limit cycle, whicharise as a consequence of a so-called Chenciner bifurcation of the system. Thesecond is intermittency and associated bifurcation routes to strange attractors.Both phenomena are persistent and occur generically in nonlinearmulti-agent evolutionary systems.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 00-04.

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Date of creation: 2000
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Handle: RePEc:ams:ndfwpp:00-04
Contact details of provider: Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
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Web page: http://www.fee.uva.nl/cendef/
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  1. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December.
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