Limitations of stabilizing effects of fundamentalists: facing positive feedback traders
The authors analyze financial interactions between chartists with bounded leverage and fundamentalists within a heterogeneous agent model, focusing on the role of fundamentalists to stabilize prices. While many related studies are solely based on simulations, the authors analytically prove that the...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
De Gruyter
2019-12-01
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| Series: | Economics: Journal Articles |
| Subjects: | |
| Online Access: | https://doi.org/10.5018/economics-ejournal.ja.2019-44 |
| _version_ | 1818112416937934848 |
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| author | Baumann Michael Heinrich Baumann Michaela Erler Alexander |
| author_facet | Baumann Michael Heinrich Baumann Michaela Erler Alexander |
| author_sort | Baumann Michael Heinrich |
| collection | DOAJ |
| description | The authors analyze financial interactions between chartists with bounded leverage and fundamentalists within a heterogeneous agent model, focusing on the role of fundamentalists to stabilize prices. While many related studies are solely based on simulations, the authors analytically prove that the existence of fundamentalists is insufficient to avoid asset price bubbles for a certain setup of a feedback trader model. Moreover, similar studies very often face the criticism that chartists might run out of money before the emergence of bubbles, as these studies typically analyze the role of chartists with unbounded leverage. In the work at hand, however, the authors prove that even in an environment where chartists have limited access to finance, their investment behavior can lead to exploding prices. The chartists under study are so-called positive feedback traders, whose leverage is bounded. Additionally, the authors derive upper boundaries for positive feedback traders’ initial investment necessary to avoid exploding prices. In order to stabilize stock/asset markets, intervention measures might be helpful. |
| first_indexed | 2024-12-11T03:18:36Z |
| format | Article |
| id | doaj.art-a1db9b76a7ed421eafbc9959d2321eca |
| institution | Directory Open Access Journal |
| issn | 1864-6042 |
| language | English |
| last_indexed | 2024-12-11T03:18:36Z |
| publishDate | 2019-12-01 |
| publisher | De Gruyter |
| record_format | Article |
| series | Economics: Journal Articles |
| spelling | doaj.art-a1db9b76a7ed421eafbc9959d2321eca2022-12-22T01:22:41ZengDe GruyterEconomics: Journal Articles1864-60422019-12-0113110.5018/economics-ejournal.ja.2019-44Limitations of stabilizing effects of fundamentalists: facing positive feedback tradersBaumann Michael Heinrich0Baumann Michaela1Erler Alexander2Department of Mathematics and Department of Economics, University of Bayreuth, GermanyUniversity of Bayreuth,GermanyUniversity of Bayreuth,GermanyThe authors analyze financial interactions between chartists with bounded leverage and fundamentalists within a heterogeneous agent model, focusing on the role of fundamentalists to stabilize prices. While many related studies are solely based on simulations, the authors analytically prove that the existence of fundamentalists is insufficient to avoid asset price bubbles for a certain setup of a feedback trader model. Moreover, similar studies very often face the criticism that chartists might run out of money before the emergence of bubbles, as these studies typically analyze the role of chartists with unbounded leverage. In the work at hand, however, the authors prove that even in an environment where chartists have limited access to finance, their investment behavior can lead to exploding prices. The chartists under study are so-called positive feedback traders, whose leverage is bounded. Additionally, the authors derive upper boundaries for positive feedback traders’ initial investment necessary to avoid exploding prices. In order to stabilize stock/asset markets, intervention measures might be helpful.https://doi.org/10.5018/economics-ejournal.ja.2019-44heterogeneous agentsfeedback tradingfundamentalistschartiststrend followersfinancial bubblesfinancial crisisd84g01g11 |
| spellingShingle | Baumann Michael Heinrich Baumann Michaela Erler Alexander Limitations of stabilizing effects of fundamentalists: facing positive feedback traders Economics: Journal Articles heterogeneous agents feedback trading fundamentalists chartists trend followers financial bubbles financial crisis d84 g01 g11 |
| title | Limitations of stabilizing effects of fundamentalists: facing positive feedback traders |
| title_full | Limitations of stabilizing effects of fundamentalists: facing positive feedback traders |
| title_fullStr | Limitations of stabilizing effects of fundamentalists: facing positive feedback traders |
| title_full_unstemmed | Limitations of stabilizing effects of fundamentalists: facing positive feedback traders |
| title_short | Limitations of stabilizing effects of fundamentalists: facing positive feedback traders |
| title_sort | limitations of stabilizing effects of fundamentalists facing positive feedback traders |
| topic | heterogeneous agents feedback trading fundamentalists chartists trend followers financial bubbles financial crisis d84 g01 g11 |
| url | https://doi.org/10.5018/economics-ejournal.ja.2019-44 |
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