Speculative behaviour and complex asset price dynamics: a global analysis

Chiarella, Carl; Dieci, Roberto; Gardini, Laura

doi:10.1016/s0167-2681(02)00066-5

Cited by 147 publications

(90 citation statements)

References 16 publications

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“…Again, endogenous competition between trading strategies may lead to complex price dynamics. Other influential models include Day and Huang (1990), Chiarella (1992), de Grauwe et al (1993, Chiarella et al (2002), Westerhoff and Dieci (2006) and de Grauwe and Grimaldi (2006). Such speculative forces are essential to our model.…”

Section: Introductionmentioning

confidence: 93%

A simple model of a speculative housing market

Dieci

Westerhoff

2011

J Evol Econ

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We develop a simple model of a speculative housing market in which the demand for houses is influenced by expectations about future housing prices. Guided by empirical evidence, agents rely on extrapolative and regressive forecasting rules to form their expectations. The relative importance of these competing views evolves over time, subject to market circumstances. As it turns out, the dynamics of our model is driven by a two-dimensional nonlinear map which may display irregular boom and bust housing price cycles, as repeatedly observed in many actual markets. However, we also find that speculation may be a source of both stability and instability.

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Section: Introductionmentioning

confidence: 93%

A simple model of a speculative housing market

Dieci

Westerhoff

2011

J Evol Econ

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“…Following the asset pricing dynamic framework of a .nancial market with one risk-free asset and one risky asset developed by Brock and Hommes (1998), He (2001, 2003) and He (2003), as well as two risky assets studied in Chiarella et al (2005) under heterogeneous beliefs, we consider a general asset pricing model with one risk-free asset and multiple risky assets when agents' beliefs are heterogeneous. The asset demands are derived from the standard one-period CARA utility maximization.…”

Section: The Modelmentioning

confidence: 99%

“…We cite in particular the models that have been proposed by Day and Huang (1990), Brock and Hommes (1998), Lux (1998), Gaunersdorfer (2000), He (2001, 2003), Chiarella et al (2002), andFernandez-Rodriguez et al, (2002). These models in general consider a .nancial market with one risky asset and one risk-free asset and explore the e/ect of agents' heterogeneous beliefs about expected return and volatility of the risky asset on the dynamics of asset prices.…”

Section: Introductionmentioning

confidence: 99%

“…A contribution to the issues raised in the previous paragraph can be found in Chiarella et al (2005) who develop a discrete time model of .nancial market dynamics that combines the essential elements of the interacting heterogeneous agents paradigm with the classical model of diversi cation between two risky assets and a risk-free asset. In particular, a .nancial market with two risky assets and a riskless asset is considered, the time evolution of which is driven by the interaction of two types of agents, fundamentalists and chartists, together with a market maker.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, changes in beliefs about the risk/return structure can cause volatility to spill-over from the market for one risky asset to the other. However, the model developed in Chiarella et al (2005) is a very stylized one, in that it considers only two risky assets, it does not take into account the market fractions of the two groups, and the fundamental prices of the risky assets are assumed to be exogenously given.…”

Section: Introductionmentioning

confidence: 99%

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Heterogeneous Expectations and Speculative Behavior in a Dynamic Multi-Asset Framework

Chiarella

Dieci

2005

SSRN Journal

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Following the framework of a one risky -one riskless asset model developed by Brock and Hommes (1998), this paper considers a discrete-time model of a .nancial market where heterogeneous groups of agents allocate their wealth amongst multiple risky assets and a riskless asset. Agents follow di/erent expectation formation schemes for both .rst and second moments of the distribution of returns. Instead of using a Walrasian auctioneer scenario as the market clearing mechanism, a market maker scenario is used. In particular, the paper focuses on the case of two risky assets and two agent types, fundamentalists and trend chasers. Conditions for the stability of the "fundamental" equilibrium are established in terms of the key parameters, in particular the extrapolation rate of the trend chasers and the weight of the two groups in the market. Numerical explorations are performed in order to analyze the combined e/ect of the interaction between heterogeneous traders and the diversi.cation among multiple risky assets. Particular attention is paid to the e/ect of the correlation between the risky assets. It turns out that investors' anticipated correlation and portfolio diversi.cation do not always have a stabilizing role, but rather may act as a further source of complexity in the .nancial market.JEL classi cation: C61; D84; G11; G12

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Complex dynamics in equilibrium asset pricing models with boundedly rational, heterogeneous agents

2013

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We study a simple model based upon the Lucas framework where heterogeneous agents behave rationally in a fully intertemporal setting but do not know other investors' personal preferences, wealth or investment portfolios. As a consequence, agents initially do not know the equilibrium asset pricing function and must make guesses which they update via adaptive learning with constant gain.We demonstrate that even in this simple environment the economy can, depending on parameters, exhibit either stable convergence to equilibrium, or chaotic dynamical behavior of asset prices and trading volume without converging to the rational expectations equilibrium of the Lucas model. This contradicts the assertion that the Lucas model is stable in the face of modest deviations from the strong assumptions required to compute the equilibrium.

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Speculative behaviour and complex asset price dynamics: a global analysis

Cited by 147 publications

References 16 publications

A simple model of a speculative housing market

A simple model of a speculative housing market

Heterogeneous Expectations and Speculative Behavior in a Dynamic Multi-Asset Framework

Complex dynamics in equilibrium asset pricing models with boundedly rational, heterogeneous agents

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