Speculative bubbles and fat tail phenomena in a heterogeneous agent model

Details Speculative bubbles and fat tail phenomena in a heterogeneous agent model Speculative bubbles and fat tail phenomena in a heterogeneous agent model

2003-12-19

arxiv.org/abs/nlin/0312040v1

W. Barnett, et.al., Economic Complexity, ISETE vol.14, Chapter 10 (2003) 259-275, Elsevier, Amsterdam

Nonlinear Sciences

Chaotic Dynamics

22 pages, 5 figures

Scientific paper

The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations. We find occurrences of non-stationary chaos, or speculative bubble, are caused by the heterogeneity of traders' strategies. Furthermore, we show that the distributions of returns generated from the heterogeneous agent model have fat tails, a remarkable stylized fact observed in almost all financial markets.

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