Asset Price Dynamics with Heterogeneous Groups

Physica D, Vol. 225, pp. 43-54, 2007

12 Pages Posted: 25 Apr 2007 Last revised: 30 Apr 2016

See all articles by Gunduz Caginalp

Gunduz Caginalp

University of Pittsburgh - Department of Mathematics

Huseyin Merdan

TOBB University of Economics and Technology

Abstract

A system of ordinary differential equations is used to study the price dynamics of an asset under various conditions. One of these involves the introduction of new information that is interpreted differently by two groups. Another studies the price change due to a change in the number of shares. The steady state is examined under these conditions to determine the changes in the price due to these phenomena. Numerical studies are also performed to understand the transition between the regimes. The differential equations naturally incorporate the effects due to the finiteness of assets (rather than assuming unbounded arbitrage) in addition to investment strategies that are based on either price momentum (trend) or valuation considerations. The numerical studies are compared with closed-end funds that issue additional shares, and offers insight into the strategies of investors.

Keywords: Asset, price, dynamics, heterogeneous information, investment strategies, differential equations, modeling, stock prices

JEL Classification: G12, E37

Suggested Citation

Caginalp, Gunduz and Merdan, Huseyin, Asset Price Dynamics with Heterogeneous Groups. Physica D, Vol. 225, pp. 43-54, 2007, Available at SSRN: https://ssrn.com/abstract=982473

Gunduz Caginalp (Contact Author)

University of Pittsburgh - Department of Mathematics ( email )

507 Thackeray Hall
Pittsburgh, PA 15260
United States
412-624-8339 (Phone)
412-624-8397 (Fax)

Huseyin Merdan

TOBB University of Economics and Technology ( email )

Department of Mathematics
Söğütözü Cad. 43,
Ankara, 06560
Turkey

HOME PAGE: http://merdan.etu.edu.tr/

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