Heterogeneous traders, price-volume signals, and complex asset price dynamics
We seek to develop a novel asset pricing model with heterogeneous traders. Fundamental traders expect that asset prices converge towards their intrinsic values, whereas chart traders rely on both price and volume signals to determine their orders. To be precise, the larger the trading volume, the mo...
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| Main Author: | |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2005-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/DDNS.2005.19 |
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| Summary: | We seek to develop a novel asset pricing model with heterogeneous traders. Fundamental traders expect that asset prices converge towards their
intrinsic 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 deterministic
model 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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| ISSN: | 1026-0226 1607-887X |