Heterogeneous traders, price‐volume signals, and complex asset price dynamics | Zendy

Frank Westerhoff | Zendy

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Heterogeneous traders, price‐volume signals, and complex asset price dynamics

Author(s) -

Frank Westerhoff

Publication year - 2005

Publication title -

discrete dynamics in nature and society

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.264

H-Index - 39

eISSN - 1607-887X

pISSN - 1026-0226

DOI - 10.1155/ddns.2005.19

Subject(s) - asset (computer security) , economics , chart , econometrics , intuition , capital asset pricing model , financial economics , volume (thermodynamics) , computer science , mathematics , philosophy , statistics , physics , computer security , epistemology , quantum mechanics

We seek to develop a novel asset pricing model with heterogeneous traders. Fundamental traders expect that asset prices converge towards theirintrinsic values, whereas chart traders rely on both price and volume signals to determine their orders. To be precise, the larger the trading volume, the more they believe in the persistence of the current price trend. Simulations of our nonlinear deterministicmodel reveal that interactions between fundamentalists and chartists may cause intricate endogenous price fluctuations. Contrary to the intuition, we find that chart trading may increase market stability

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