Dynamics of moving average rules in a continuous-time financial market model

He, XZ; Zheng, M

Dynamics of moving average rules in a continuous-time financial market model

He, XZ

Zheng, M

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Publication Type:: Journal Article
Citation:: Journal of Economic Behavior and Organization, 2010, 76 (3), pp. 615 - 634
Issue Date:: 2010-12-01

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Field	Value	Language
dc.contributor.author	He, XZ https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Zheng, M	en_US
dc.date.issued	2010-12-01	en_US
dc.identifier.citation	Journal of Economic Behavior and Organization, 2010, 76 (3), pp. 615 - 634	en_US
dc.identifier.issn	0167-2681	en_US
dc.identifier.uri	http://hdl.handle.net/10453/12994
dc.description.abstract	Within a continuous-time framework, this paper proposes a stochastic heterogeneous agent model (HAM) of financial markets with time delays to unify various moving average rules used in discrete-time HAMs. The time delay represents a memory length of a moving average rule in discrete-time HAMs. Intuitive conditions for the stability of the fundamental price of the deterministic model in terms of agents' behavior parameters and memory length are obtained. It is found that an increase in memory length not only can destabilize the market price, resulting in oscillatory market price characterized by a Hopf bifurcation, but also can stabilize an otherwise unstable market price, leading to stability switching as the memory length increases. Numerical simulations show that the stochastic model is able to characterize long deviations of the market price from its fundamental price and excess volatility and generate most of the stylized facts observed in financial markets. © 2010.	en_US
dc.relation.ispartof	Journal of Economic Behavior and Organization	en_US
dc.relation.isbasedon	10.1016/j.jebo.2010.08.005	en_US
dc.subject.classification	Economics	en_US
dc.title	Dynamics of moving average rules in a continuous-time financial market model	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	76	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	76	en_US

Abstract:

Within a continuous-time framework, this paper proposes a stochastic heterogeneous agent model (HAM) of financial markets with time delays to unify various moving average rules used in discrete-time HAMs. The time delay represents a memory length of a moving average rule in discrete-time HAMs. Intuitive conditions for the stability of the fundamental price of the deterministic model in terms of agents' behavior parameters and memory length are obtained. It is found that an increase in memory length not only can destabilize the market price, resulting in oscillatory market price characterized by a Hopf bifurcation, but also can stabilize an otherwise unstable market price, leading to stability switching as the memory length increases. Numerical simulations show that the stochastic model is able to characterize long deviations of the market price from its fundamental price and excess volatility and generate most of the stylized facts observed in financial markets. © 2010.

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http://hdl.handle.net/10453/12994