Chiarella, C. and Dieci, R. and Gardini, L. and Sbragia, L. (2008) 'A model of financial market dynamics with heterogeneous beliefs and state-dependent confidence.', Computational economics., 32 (1/2). pp. 55-72.
In a simple model of financial market dynamics, we allow the price of a risky security to be set by a market maker depending on the excess demand of heterogeneous interacting traders, fundamentalists and chartists, who place their orders based upon different expectations schemes about future prices: while chartists rely on standard trend-based rules, fundamentalists are assumed to know the economic environment and to form their beliefs accordingly. As price moves away from the long-run fundamental, fundamentalists become less confident in their forecasts, and put increasing weight on a reversion towards the fundamental price. The resulting two-dimensional discrete time dynamical system can exhibit a rich range of dynamic scenarios, often characterized by coexistence of attractors. A simple noisy version of the model reveals a variety of possible patterns for return time series.
|Keywords:||Heterogeneous beliefs, Financial market dynamics, Bifurcation analysis, Coexisting attractors.|
|Full text:||Full text not available from this repository.|
|Publisher Web site:||http://dx.doi.org/10.1007/s10614-008-9131-9|
|Record Created:||22 May 2009 14:20|
|Last Modified:||29 May 2009 14:25|
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