TY - JOUR
T1 - Market mood, adaptive beliefs and asset price dynamics
AU - Dieci, Roberto
AU - Foroni, Ilaria
AU - Gardini, Laura
AU - He, Xue Zhong
N1 - Funding Information:
This work has been performed under the activity of the national research project “Nonlinear Models in Economics and Finance: Complex Dynamics, Disequilibrium, Strategic Interaction”, MIUR, Italy. An earlier version of this paper was prepared while Xue-Zhong (Tony). He was visiting University of Urbino, whose hospitality he gratefully acknowledges. The usual caveat applies. Financial support from the Australian Research Council (ARC) under a discovery grant for He is also gratefully acknowledged.
PY - 2006/8
Y1 - 2006/8
N2 - Empirical evidence has suggested that, facing different trading strategies and complicated decision, the proportions of agents relying on particular strategies may stay at constant level or vary over time. This paper presents a simple "dynamic market fraction" model of two groups of traders, fundamentalists and trend followers, under a market maker scenario. Market mood and evolutionary adaption are characterized by fixed and adaptive switching fraction among two groups, respectively. Using local stability and bifurcation analysis, as well as numerical simulation, the role played by the key parameters in the market behaviour is examined. Particular attention is paid to the impact of the market fraction, determined by the fixed proportions of confident fundamentalists and trend followers, and by the proportion of adaptively rational agents, who adopt different strategies over time depending on realized profits.
AB - Empirical evidence has suggested that, facing different trading strategies and complicated decision, the proportions of agents relying on particular strategies may stay at constant level or vary over time. This paper presents a simple "dynamic market fraction" model of two groups of traders, fundamentalists and trend followers, under a market maker scenario. Market mood and evolutionary adaption are characterized by fixed and adaptive switching fraction among two groups, respectively. Using local stability and bifurcation analysis, as well as numerical simulation, the role played by the key parameters in the market behaviour is examined. Particular attention is paid to the impact of the market fraction, determined by the fixed proportions of confident fundamentalists and trend followers, and by the proportion of adaptively rational agents, who adopt different strategies over time depending on realized profits.
UR - http://www.scopus.com/inward/record.url?scp=33644929263&partnerID=8YFLogxK
U2 - 10.1016/j.chaos.2005.08.065
DO - 10.1016/j.chaos.2005.08.065
M3 - Article
AN - SCOPUS:33644929263
SN - 0960-0779
VL - 29
SP - 520
EP - 534
JO - Chaos, Solitons and Fractals
JF - Chaos, Solitons and Fractals
IS - 3
ER -