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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Fabio Tramontana & Frank Westerhoff & Laura Gardini, 2010. "On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders," Working Papers 1005, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2010.
    • Handle: RePEc:urb:wpaper:10_05
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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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