Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism

In contrast with the canonical models of financial markets with heterogeneous agents,, Naimzada and Ricchiuti, (, ) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability. In this paper,...

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Bibliographic Details
Published in:Economic notes - Monte Paschi Siena 2014-11, Vol.43 (3), p.233-247
Main Authors: Naimzada, Ahmad K., Ricchiuti, Giorgio
Format: Article
Language:English
Subjects:
Economic models
Economics
Prices
Studies
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Summary:In contrast with the canonical models of financial markets with heterogeneous agents,, Naimzada and Ricchiuti, (, ) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability. In this paper, differently from, Naimzada and Ricchiuti, (, ), we assume that the market maker employs a so‐called multiplicative price mechanism (Tuinstra, ; Zhu et al., ). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.
ISSN:0391-5026
1468-0300
DOI:10.1111/ecno.12021