Financial Crises and Interacting Heterogeneous Agents

Huanhuan Zheng, Weihong Huang, Wai-Mun Chia

Research output: Contribution to journalArticlepeer-review


In this paper we examine various types of financial crises and conjecture their underlying mechanisms using a deterministic heterogeneous agent model (HAM). In a market-maker framework, forward-looking investors update their price expectations according to psychological trading windows and cluster themselves strategically to optimize their expected profits. The switches between trading strategies lead to price dynamics in market that subsequently move price up and down, and in the extreme case, cause financial crises. The model suggests that both fundamentalists and chartists could potentially contribute to the financial crises.
Original languageEnglish
Pages (from-to)1105-122
Number of pages18
JournalJournal of Economic Dynamics and Control
Issue number6
Early online date1 Feb 2010
Publication statusPublished - Jun 2010

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