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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.
In: Economics : the Open-Access, Open-Assessment E-Journal. Vol. 2019 (7 January 2019) Issue Discussion paper 3 . - 28 Seiten.
ISSN 1864-6042

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Abstract in another language

The authors analyze financial interactions between fundamentalists and chartists within a heterogeneous agent model, focusing on the role of fundamentalists stabilizing prices. In contrast to related studies, which are based on simulations and calculations, they analytically prove that the presence of fundamentalists is not sufficient to avoid asset price bubbles. The behavior of trend followers with bounded leverage can result in exploding prices irrespective of fundamentalists' investment decisions. They derive upper boundaries for positive feedback traders' initial investment necessary to avoid exploding prices. In order to stabilize stock/asset markets, intervention measures might be helpful.

Further data

Item Type: Article in a journal
Refereed: No
Keywords: Heterogeneous agents; feedback trading; fundamentalists; chartists; trend
followers; financial bubbles; financial crisis
Subject classification: JEL D84, G01, G11
Institutions of the University: 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 > Advanced Fields > Nonlinear Dynamics
Research Institutions > Research Centres > Forschungszentrum für Modellbildung und Simulation (MODUS)
Faculties
Faculties > Faculty of Mathematics, Physics und Computer Science
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Profile Fields
Profile Fields > Advanced Fields
Research Institutions
Research Institutions > Research Centres
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
500 Science > 510 Mathematics
Date Deposited: 15 Jan 2019 07:14
Last Modified: 15 Jan 2019 07:14
URI: https://eref.uni-bayreuth.de/id/eprint/46922

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