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Emergent volatility in asset markets with heterogeneous agents

Author

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  • Honggang Li
  • J. Barkley Rosser

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.

Suggested Citation

  • Honggang Li & J. Barkley Rosser, 2001. "Emergent volatility in asset markets with heterogeneous agents," Discrete Dynamics in Nature and Society, Hindawi, vol. 6, pages 1-10, January.
    • Handle: RePEc:hin:jnddns:165393
    DOI: 10.1155/S1026022601000188
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    Cited by:

    1. Frank H. Westerhoff, 2005. "Heterogeneous traders, price-volume signals, and complex asset price dynamics," Discrete Dynamics in Nature and Society, Hindawi, vol. 2005, pages 1-11, January.

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