Asset Price Dynamics in a Financial Market with Heterogeneous Trading Strategies and Time Delays

Alessandro Sansone () and Giuseppe Garofalo ()

Finance from EconWPA

Abstract: In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian agents who process information from the market with different time delays. Each class of investors is characterized by path dependent risk aversion. We also allow for the possibility of evolutionary switching between trend following and contrarian strategies. We find that the system shows periodic, quasi-periodic and chaotic dynamics as well as synchronization between technical traders. Furthermore, the model is able to generate time series of returns that exhibit statistical properties similar to those of the S&P500 index, which is characterized by excess kurtosis, volatility clustering and long memory.

Keywords: Dynamic asset pricing; Heterogeneous agents; Complex dynamics; Strange attractors; Chaos; Intermittency; Stock market dynamics; Synchronization (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
Date: 2005-10-24
Note: Type of Document - pdf; pages: 23
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http://129.3.20.41/eps/fin/papers/0510/0510026.pdf (application/pdf)

Related works:
Working Paper: Asset Price Dynamics in a Financial Market with Heterogeneous Trading Strategies and Time Delays (2006)
Working Paper: Asset Price Dynamics in a Financial Market with Heterogeneous Trading Strategies and Time Delays (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0510026

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