| Authors |
Lux |
| Journal |
Journal of economic behavior & organization |
| Year |
1998 |
| Type |
Published Paper |
| Abstract |
This paper develops a model of the social and economic interaction of speculators in a securities or foreign exchange market. Both chartist and fundamentalist strategies are pursued by traders. The formalization of chartists behavior combines elements of mimetic contagion and trend chasing leading to waves of optimism or pessimism. Furthermore, changes of strategies from chartist to fundamentalist behavior and vice versa occur because speculators compare the performance of both strategies. The dynamic system under study encompasses the time development of the distribution of attitudes among traders as well as price adjustment. Chaotic attractors are found within a broad range of parameter values. The distributions of returns derived from chaotic trajectories of the model share important characteristics of empirical data: they exhibit high peaks around the mean as well as fat tails (leptokurtosis) and become less leptokurtotic under time aggregation. |
| Keywords |
Herd behavior, bubbles, leptokurtosis |
| URL |
https://www.sciencedirect.com/science/article/abs/pii/S0167268197000887 |
| Tags |
Asset Pricing, Trading Volume and Market Efficiency |
Financing- and Investment Decisions (Individual) |
Propagation of Noise / Undesirable Outcomes |
Social Network Structure |
Theory
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