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Title: Asset price dynamics in a financial market with heterogeneous trading strategies and time delays
Authors: Garofalo, Giuseppe
Sansone, Alessandro
Keywords: Dynamic asset pricing;Heterogeneous agents;Complex dynamics;Chaos;Stock market dynamics
Issue Date: 2007
Publisher: Elsevier
Source: Sansone A., Garofalo G. 2007. Asset price dynamics in a financial market with heterogeneous trading strategies and time delays. "Physica A: Statistical Mechanics and its Applications" 382 (1): 247-257
In this paper we present a continuous time dynamical model of heterogeneous agents interacting in a financial market where transactions are cleared by a market maker. The market is composed of fundamentalist, trend following and contrarian agents who process market information with different time delays. Each class of investors is characterized by path dependent risk aversion. We also allow for the possibility of evolutionary switching between trend following and contrarian strategies. We find that the system shows periodic, quasi-periodic and chaotic dynamics as well as synchronization between technical traders. Furthermore, the model is able to generate time series of returns that exhibit statistical properties similar to those of the S&P 500 index, which is characterized by excess kurtosis, volatility clustering and long memory.
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ISSN: 0378-4371
DOI: 10.1016/j.physa.2007.02.022
Appears in Collections:DEIM - Archivio della produzione scientifica

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