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A 'bull and bear' model of interacting ?financial markets. Part I: dynamics in one and two dimensions

Author

Listed:
  • Fabio Tramontana

    (Università Politecnica delle Marche & Dipartimento di Economia e Metodi Quantitativi, Università di Urbino)

  • Laura Gardini

    (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))

  • Roberto Dieci

    (Università di Bologna)

  • Frank Westerhoff

    (University of Bamberg)

Abstract

We develop a three-dimensional nonlinear dynamic model in which the stock markets of two countries are linked through the foreign exchange market. Connections are due to the trading activity of heterogeneous speculators. Using analytical and numerical tools, we seek to explore how the coupling of the markets may affect the emergence of 'bull and bear' market dynamics. The dimension of the model can be reduced by restricting investors' trading activity, which enables the dynamic analysis to be performed stepwise, from low-dimensional cases up to the full three-dimensional model. In Part I of our paper, we focus on the one and two-dimensional case.

Suggested Citation

  • Fabio Tramontana & Laura Gardini & Roberto Dieci & Frank Westerhoff, 2008. "A 'bull and bear' model of interacting ?financial markets. Part I: dynamics in one and two dimensions," Working Papers 0807, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2008.
    • Handle: RePEc:urb:wpaper:08_07
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    File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_08_07.pdf
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    More about this item

    Keywords

    Heterogeneous speculators; bull and bear markets; nonlinear dynamics; homoclinic bifurcations.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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