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The bull and bear market model of Huang and Day : Some extensions and new results

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  • Tramontana, Fabio
  • Westerhoff, Frank
  • Gardini, Laura

Abstract

We develop a financial market model with interacting chartists and fundamentalists that embeds the famous bull and bear market model of Huang and Day as a special case. Their model is given by a one-dimensional continuous piecewise-linear map. Our model, on the other hand, is more flexible and is represented by a one-dimensional discontinuous piecewise-linear map. Nevertheless, we are able to provide a more or less complete analytical treatment of the model dynamics by characterizing its possible outcomes in parameter space. In addition, we show that quite different scenarios can trigger real-world phenomena such as bull and bear market dynamics and excess volatility.

Suggested Citation

  • Tramontana, Fabio & Westerhoff, Frank & Gardini, Laura, 2012. "The bull and bear market model of Huang and Day : Some extensions and new results," BERG Working Paper Series 89, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:89
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    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • 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

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