Discrete Dynamics in Nature and Society
Volume 6 (2001), Issue 3, Pages 171-180
doi:10.1155/S1026022601000188
Emergent volatility in asset markets with heterogeneous agents
1School of Management, Beijing Normal University, Beijing 100875, China
2program in Economics MSC 0204,, James Madison University, Harrisonburg 22807, VA, USA
Received 30 June 2000
Copyright © 2001 Honggang Li and J. Barkley Rosser. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
This paper examines the emergence of complex volatility in dynamic asset markets when there are heterogeneous agents. A discrete formulation is studied with two categories of market participants, fundamentalist traders who buy when the asset price is below the fundamental value and sell when it is above and noise traders who use moving average technical trading rules that can lead them to chase trends. Agents switch from one type of strategy to the other according to relative returns. A variety of outcomes are studied using numerical simulation, including variation of market price responsiveness to changes in excess demand, in switching behavior, and the introduction of noise. Bifurcation analysis of certain parameters is presented.