Heterogeneous Fundamentalists and Imitative Processes

Ahmad Naimzada and Giorgio Ricchiuti

No 104, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: Developing a model with a switching mechanism, we show how complex dynamics can be generated even though heterogeneity arises among agents with the same trading rules (fundamentalists). We assume that there are two experts which are imitated by other operators. We show that (i) market instability and periodic, or even, chaotic price fluctuations can be generated; (ii) conditions exist under which an expert can drive another expert out of the market; (iii) two experts can survive when the dynamic system either generates a period doubling bifurcation around an attractor or when an homoclinic bifurcation leads to the merging of the two attractors (i.e. Dieci et al., 2001); (iv) a central role is played by the reaction to misalignment of both market makers and agents.

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: 16 pages
Date: 2006-11, Revised 2006-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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