Financial Crises and Interacting Heterogeneous Agents

TY - JOUR

T1 - Financial Crises and Interacting Heterogeneous Agents

AU - Zheng, Huanhuan

AU - Huang, Weihong

AU - Chia, Wai-Mun

PY - 2010/6

Y1 - 2010/6

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=77952009663&partnerID=8YFLogxK

U2 - 10.1016/j.jedc.2010.01.013

DO - 10.1016/j.jedc.2010.01.013

M3 - Article

VL - 34

SP - 1105

EP - 1122

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

IS - 6

ER -