Financial crises and interacting heterogeneous agents

Weihong Huang; Huanhuan Zheng; Wai-Mun Chia

doi:10.1016/j.jedc.2010.01.013

Financial crises and interacting heterogeneous agents

Weihong Huang, Huanhuan Zheng, Wai-Mun Chia

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

61 Citations (Scopus)

Abstract

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. © 2010 Elsevier B.V.

Original language	English
Pages (from-to)	1105-1122
Journal	Journal of Economic Dynamics and Control
Volume	34
Issue number	6
DOIs	https://doi.org/10.1016/j.jedc.2010.01.013
Publication status	Published - Jun 2010
Externally published	Yes

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Funding

This research is supported by Grant RG68/06 from Ministry of Education, Singapore. Twenty years after his doctoral research, the first author's reviving interest in financial crises was inspired by Barkley Rosser, Jr.'s stimulating presentation at Complexity 2006 (La Baume-lex-Aix, France, may 17-21).

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

Research Keywords

Chaos
Discounted expected profits
Financial crisis
Multi-phase heterogeneous beliefs

Policy Impact

Cited in Policy Documents

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10.1016/j.jedc.2010.01.013

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Cite this

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abstract = "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. {\textcopyright} 2010 Elsevier B.V.",

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AU - Chia, Wai-Mun

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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. © 2010 Elsevier B.V.

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. © 2010 Elsevier B.V.

KW - Chaos

KW - Discounted expected profits

KW - Financial crisis

KW - Multi-phase heterogeneous beliefs

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DO - 10.1016/j.jedc.2010.01.013

M3 - RGC 21 - Publication in refereed journal

SN - 0165-1889

VL - 34

SP - 1105

EP - 1122

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

IS - 6

ER -

Financial crises and interacting heterogeneous agents

Abstract

Bibliographical note

Funding

UN SDGs

Research Keywords

Policy Impact

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