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

Fabio Tramontana, Laura Gardini (), Roberto Dieci () and Frank Westerhoff
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Roberto Dieci: Università di Bologna

No 807, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

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.

Keywords: Heterogeneous speculators; bull and bear markets; nonlinear dynamics; homoclinic bifurcations. (search for similar items in EconPapers)
JEL-codes: C61 C63 D84 G15 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008, Revised 2008
New Economics Papers: this item is included in nep-fmk
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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_08_07.pdf First version, 2008 (application/pdf)

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