Contagion effects in a chartist–fundamentalist model with time delays

Ghassan Dibeh

Physica A: Statistical Mechanics and its Applications, 2007, vol. 382, issue 1, 52-57

Abstract: In this paper two models of speculative markets are developed to study the effects of feedback mechanisms in financial markets. In the first model, a crash market model couples a linear chartist–fundamentalist model with time delays with a log-periodic market index I(t) through direct coupling. Numerical solutions to the model show that asset prices exhibit significant persistence as a result of the coupling to the log-periodic market index. An extension to include endogenous wealth dynamics shows that the chartists benefit from the persistent dynamics induced by the coupling. The second model is a two-asset model represented by a 2-dimensional delay-differential equation. Asset one price exhibits limit cycle dynamics while in the second market asset prices follow stable damped oscillations. The markets are coupled through a diffusive coupling term. Solutions to the coupled model show that the dynamics of asset two changes fundamentally with the price now exhibiting a limit cycle. The stable converging dynamics is replaced with limit cycle oscillations around the fundamental.

Keywords: Delay-differential equations; Financial crises; Speculative markets (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:382:y:2007:i:1:p:52-57

DOI: 10.1016/j.physa.2007.02.007

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