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Heterogeneous Fundamentalists and Imitative Processes

Author

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  • Ahmad Naimzada

    () (Department of Economics, University of Milan-Bicocca)

  • Giorgio Ricchiuti

    () (Department of Economics, University of Florence)

Abstract

Developing a model with a switching mechanism, we show how complex dynamics can be generated even though heterogeneity arises among agents with the same trading rules (fundamentalists). We assume that there are two experts which are imitated by other operators. We show that (i) market instability and periodic, or even, chaotic price fluctuations can be generated; (ii) conditions exist under which an expert can drive another expert out of the market; (iii) two experts can survive when the dynamic system either generates a period doubling bifurcation around an attractor or when an homoclinic bifurcation leads to the merging of the two attractors (i.e. Dieci et al., 2001); (iv) a central role is played by the reaction to misalignment of both market makers and agents.

Suggested Citation

  • Ahmad Naimzada & Giorgio Ricchiuti, 2006. "Heterogeneous Fundamentalists and Imitative Processes," Working Papers 104, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  • Handle: RePEc:mib:wpaper:104
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    File URL: http://dems.unimib.it/repec/pdf/mibwpaper104.pdf
    File Function: First version, 2006
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    References listed on IDEAS

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    1. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 299-329, December.
    2. Chiarella, Carl & Dieci, Roberto & He, Xue-Zhong, 2007. "Heterogeneous expectations and speculative behavior in a dynamic multi-asset framework," Journal of Economic Behavior & Organization, Elsevier, vol. 62(3), pages 408-427, March.
    3. He, Xue-Zhong & Westerhoff, Frank H., 2005. "Commodity markets, price limiters and speculative price dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1577-1596, September.
    4. Hommes, Cars & Huang, Hai & Wang, Duo, 2005. "A robust rational route to randomness in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 1043-1072, June.
    5. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    6. Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2002. "Speculative behaviour and complex asset price dynamics: a global analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 173-197, October.
    7. Taisei Kaizoji, 2003. "Speculative bubbles and fat tail phenomena in a heterogeneous agent model," Papers nlin/0312040, arXiv.org.
    8. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    9. Ferreira, Fernando F. & de Oliveira, Viviane M. & Crepaldi, Antônio F. & Campos, Paulo R.A., 2005. "Agent-based model with heterogeneous fundamental prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 357(3), pages 534-542.
    10. Alan Kirman, 2006. "Heterogeneity in Economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 1(1), pages 89-117, May.
    11. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    12. Follmer, Hans & Horst, Ulrich & Kirman, Alan, 2005. "Equilibria in financial markets with heterogeneous agents: a probabilistic perspective," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 123-155, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Antoci, Angelo & Naimzada, Ahmad & Sodini, Mauro, 2009. "Strategic interactions and heterogeneity in a overlapping generations model with negative environmental externalities," MPRA Paper 18221, University Library of Munich, Germany.
    2. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0506-8 is not listed on IDEAS
    3. 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.
    4. Ahmad Naimzada & Giorgio Ricchiuti, 2007. "Dynamic Effects of Increasing Heterogeneity in Financial Markets," Working Papers 111, University of Milano-Bicocca, Department of Economics, revised 2007.
    5. Alessandro Carraro & Giorgio Ricchiuti, 2014. "Heterogeneous Fundamentalists and Market Maker Inventories," Working Papers - Economics wp2014_16.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    6. Ahmad Naimzada & Marina Pireddu, 2014. "Real and financial interacting oscillators: a behavioral macro-model with animal spirits," Working Papers 268, University of Milano-Bicocca, Department of Economics, revised Feb 2014.

    More about this item

    Keywords

    mathematical economics; chaos; heterogeneous interacting agents; financial markets.;

    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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