Abstract:
In this paper we present a continuous
time dynamical model of
heterogeneous agents interacting in a
financial market where transactions are
cleared by a market maker. The
market is composed of fundamentalist,
trend following and contrarian agents who process market information with
different time delays. Each class of investors is characterized by path
dependent risk aversion. We also allow for the possibility of evolutionary
switching between trend following and contrarian strategies. We find that the
system shows periodic, quasi-periodic and chaotic dynamics as well as
synchronization between technical traders. Furthermore, the model is able to
generate time series of returns that exhibit statistical properties similar to
those of the S&P 500 index, which is characterized by excess kurtosis, volatility clustering and long memory.
