Abstract
This paper considers a continuous-time heterogeneous agent model of a ...nancial market with one risky asset, two types of agents (i.e., the fundamentalists and the chartists), and three time delays. The chartist demand is determined through a nonlinear function of the di¤erence be- tween the current price and a weighted moving average of the delayed prices whereas the fundamentalist demand is governed by the di¤erence between the current price and the fundamental value. The asset price dy- namics is described by a nonlinear delay di¤erential equation. Two main results are analytically and numerically shown: (i) the delay destabilizes the market price and generates cyclic oscillations around the equilibrium; (ii) under multiple delays, stability loss and gain repeatedly occurs as a length of the delay increases.
Highlights
Persistent volatility is a prominent characteristic feature of financial markets
This paper considers a continuous-time heterogeneous agent model of a financial market with one risky asset, two types of agents, and three time delays
Chiarella [5], which is a development of Beja and Goldman [4], shows that the market price tends to a stable limit cycle under a nonlinear demand function of the risky asset when the equilibrium is unstable
Summary
Reviewed by: Davide Radi, University Carlo Cattaneo, Italy Luca Guerrini, Marche Polytechnic University, Italy. Specialty section: This article was submitted to Dynamical Systems, a section of the journal Frontiers in Applied Mathematics and Statistics. This paper considers a continuous-time heterogeneous agent model of a financial market with one risky asset, two types of agents (i.e., the fundamentalists and the chartists), and three time delays. The chartist’s demand is determined through a nonlinear function of the difference between the current price and a weighted moving average of the delayed prices whereas the fundamentalist’s demand is governed by the difference between the current price and the fundamental value. The asset price dynamics is described by a nonlinear delay differential equation. (i) a single delay destabilizes the market price and generates cyclic oscillations around the equilibrium;.
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