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Bifurcation Routes to Volatility Clustering under Evolutionary Learning
[journal article]
Abstract A simple asset pricing model with two types of boundedly rational traders, fundamentalists and chartists, is studied. Fractions of trader types change over time according to evolutionary learning, with chartists conditioning their forecasting rule upon deviations from a benchmark fundamental. Volati... view more
A simple asset pricing model with two types of boundedly rational traders, fundamentalists and chartists, is studied. Fractions of trader types change over time according to evolutionary learning, with chartists conditioning their forecasting rule upon deviations from a benchmark fundamental. Volatility clustering arises endogenously and two generic mechanisms are proposed as an explanation: (1) coexistence of a stable steady state and a stable limit cycle, due to a so-called Chenciner bifurcation of the system and (2) intermittency and associated bifurcation routes to strange attractors. Economic intuition as to why these phenomena arise in nonlinear multi-agent evolutionary systems is provided.... view less
Classification
National Economy
Economic Statistics, Econometrics, Business Informatics
Free Keywords
Multi-agent systems; Bounded rationality; Evolutionary learning; Bifurcations and chaos; Coexisting attractors
Document language
English
Publication Year
2008
Page/Pages
p. 27-47
Journal
Journal of Economic Behavior & Organization, 67 (2008) 1
DOI
https://doi.org/10.1016/j.jebo.2007.07.004
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)