Abstract:
Empirical evidence has suggested that, facing different trading strategies and complicated decision, the proportions
of agents relying on particular strategies may stay at constant level or vary over time. This paper presents a simple
"dynamic market fraction" model of two groups of traders, fundamentalists and trend followers, under a market maker
scenario. Market mood and evolutionary adaption are characterized by fixed and adaptive switching fraction among
two groups, respectively. Using local stability and bifurcation analysis, as well as numerical simulation, the role played
by the key parameters in the market behaviour is examined. Particular attention is paid to the impact of the market
fraction, determined by the fixed proportions of confident fundamentalists and trend followers, and by the proportion
of adaptively rational agents, who adopt different strategies over time depending on realized profits.
