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On the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders

Fabio Tramontana, Frank Westerhoff and Laura Gardini ()

No 1005, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

Abstract: We develop a financial market model with heterogeneous interacting agents: market makers adjust prices with respect to excess demand, chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion. Moreover, speculators trade asymmetrically in over and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets. The dynamics of our model is driven by a one-dimensional discontinuous map. Despite the simplicity of our model, analytical, graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors.

Keywords: Financial markets; heterogeneous agents; technical and fundamental analysis; nonlinear dynamics; discontinuous map; bifurcation analysis. (search for similar items in EconPapers)
JEL-codes: D84 G12 G14 G15 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (42)

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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_10_05.pdf First version, 2010 (application/pdf)

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