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A Discrete--Delay Dynamic Model for the Stock Market

Author

Listed:
  • Loretti I. Dobrescu

    (School of Economics, The University of New South Wales)

  • Mihaela Neamtu

    (Department of Economic Informatics and Statistics, West University of Timisoara)

  • Dumitru Opris

    (Department of Applied Mathematics, West University of Timisoara)

Abstract

The time evolution of prices and savings in a stock market is modeled by a discrete-delay nonlinear dynamic system. The proposed model has a unique and unstable steady-state, so its time evolution is determined by the nonlinear effects acting out of the equilibrium. We perform the analysis of the linear approximation through the study of the eigenvalues of the Jacobian matrix in order to characterize the local stability properties and the local bifurcations in the parameter space. If the delay is equal to zero, Lyapunov exponents are calculated. For certain values of the parameters, we prove that the system has a chaotic behaviour. The discrete nonlinear model is associated with a discrete stochastic model. For the liniarization of this model, we establish the conditions for which the mean and quadratic mean values of the state variables are asymptotically stable. Some numerical examples are finally given to justify the theoretical results.

Suggested Citation

  • Loretti I. Dobrescu & Mihaela Neamtu & Dumitru Opris, 2011. "A Discrete--Delay Dynamic Model for the Stock Market," Discussion Papers 2012-11, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2012-11
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-11.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    price index; mutual fund; stock market; nonlinear dynamic model; Lyapunov exponents.;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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