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Limitations of Stabilizing Effects of Fundamentalists Facing Positive Feedback Traders

Title data

Baumann, Michael Heinrich ; Baumann, Michaela ; Erler, Alexander:
Limitations of Stabilizing Effects of Fundamentalists Facing Positive Feedback Traders.
Bayreuth , 2015 . - 20 p.

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Official URL: Volltext

Project information

Project title:
Project's official titleProject's id
PromotionsstipendiumNo information

Project financing: Bundesministerium für Bildung und Forschung
Hanns-Seidel-Stiftung

Abstract in another language

The behavior of different types of investors plays an important role in determining asset price fluctuations. We analyze financial interactions between fundamentalists and chartists within a heterogeneous agent model. In particular, we ask whether the presence of fundamentalists is enough to stabilize prices. In contrast to related work, which is based on simulations, we analytically prove that the presence of fundamentalists is not sufficient to avoid asset price bubbles. The behavior of trend followers might lead to exploding price processes irrespective of fundamentalists' investment decisions. Upper boundaries for positive feedback traders' investments are derived which are necessary to avoid exploding prices. In this situation, intervention measures might be necessary in order to stabilize stock/asset markets.

Further data

Item Type: Preprint, postprint
Keywords: heterogeneous agent model; feedback-based trading strategies; fundamentalists; chartists; trend followers; financial bubbles
Subject classification: JEL classification codes: D84, G01, G11
Institutions of the University: Faculties
Faculties > Faculty of Mathematics, Physics und Computer Science
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics)
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Profile Fields
Profile Fields > Advanced Fields
Profile Fields > Advanced Fields > Nonlinear Dynamics
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
500 Science > 510 Mathematics
Date Deposited: 16 Jan 2016 22:00
Last Modified: 05 May 2018 02:48
URI: https://eref.uni-bayreuth.de/id/eprint/29726

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