Resource title

The socio-economic dynamics of speculative markets : interacting agents, chaos, and the fat tails of return distributions

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Resource description

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.

Resource author

Thomas Lux

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/1743

Resource license

Adapt according to the presented license agreement and reference the original author.