Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism

Ahmad Naimzada and Giorgio Ricchiuti

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: In contrast with the canonical models, Naimzada and Ricchiuti (2008, 2009) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability in financial markets. Differently from Naimzada and Ricchiuti (2008, 2009), we assume the market maker employs a so-called multiplicative price mechanism (Tuinstra, 2002 and Zhu et al., 2009). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.

Keywords: mathematical economics; chaos; heterogeneous interacting agents; financial markets. (search for similar items in EconPapers)
JEL-codes: C61 D84 G11 G12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2013
New Economics Papers: this item is included in nep-hme
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Journal Article: Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism (2014)
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