Heterogeneous expectations and speculative behavior in a dynamic multi-asset framework

Carl Chiarella, Roberto Dieci*, Xue Zhong He

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

76 Citations (Scopus)


This paper develops a dynamic model of a financial market where heterogeneous agents invest among multiple risky assets and a risk-free asset, under a market maker scenario. Particular attention is paid to the case of two risky assets and two agent types, fundamentalists and trend chasers, whose beliefs on both first and second moments of the conditional distribution of returns are based on past observations. Conditions for the stability of the "fundamental" equilibrium are established and the effect of the correlation between the risky assets is examined. It turns out that investors' anticipated correlation and dynamic portfolio diversification do not always have a stabilizing role, but rather may act as a source of complexity in the financial market.

Original languageEnglish
Pages (from-to)408-427
Number of pages20
JournalJournal of Economic Behavior and Organization
Issue number3
Publication statusPublished - Mar 2007
Externally publishedYes


  • Asset pricing
  • Bifurcation analysis
  • Co-movements in stock prices
  • Heterogeneous beliefs
  • Portfolio choice


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