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

  • Fabio Tramontana

    ()

    (Department of Economics, University of Ancona, Italy)

  • Frank Westerhoff

    ()

    (University of Bamberg)

  • Laura Gardini

    ()

    (Department of Economics and Quantitative Methods, University of Urbino, Italy)

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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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_10_05.pdf
File Function: First version, 2010
Download Restriction: no

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1005.

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Length: 38 pages
Date of creation: 2010
Date of revision: 2010
Handle: RePEc:urb:wpaper:10_05
Contact details of provider: Web page: http://www.econ.uniurb.it/

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  1. J. Doyne Farmer & Shareen Joshi, 2000. "The Price Dynamics of Common Trading Strategies," Working Papers 00-12-069, Santa Fe Institute.
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