Asset Price Dynamics in a Chartist-Fundamentalist Model with Time Delays

22 Pages Posted: 10 Dec 2012 Last revised: 7 Apr 2014

See all articles by Loretti Dobrescu

Loretti Dobrescu

University of New South Wales, School of Economics

Mihaela Neamtu

West University of Timisoara - Department of Economic, Informatics and Statistics

Gabriela Mircea

West University of Timisoara - Department of Economic Informatics and Statistics

Date Written: December 10, 2012

Abstract

This paper studies the dynamic behavior of asset prices using a chartist - fundamentalist model with two speculative markets. To this effect, we employ a differential system with delays similar to Dibeh (2007) to describe the price dynamics and we assume that the two markets are coupled via diffusive coupling terms. We study two different time delay cases, namely when both markets experience the same time delay, and when the time delay is different across markets. First, we theoretically determine that the equilibrium exists and investigate its stability. Second, we establish the general conditions for the existence of local Hopf bifurcations and extensively analyze their direction and stability. The common conclusion from both the delay scenarios we consider is that coupled speculative markets with heterogeneous agents in each, but with different price dynamics, can be synchronized through diffusive coupling. Finally, we provide some numerical illustrations to confirm our theoretical findings.

Keywords: delay-differential equation, asset price, fundamentalists, stability, bifurcations

JEL Classification: C62, G12, C61

Suggested Citation

Dobrescu, Loretti Isabella and Neamtu, Mihaela and Mircea, Gabriela, Asset Price Dynamics in a Chartist-Fundamentalist Model with Time Delays (December 10, 2012). Available at SSRN: https://ssrn.com/abstract=2187188 or http://dx.doi.org/10.2139/ssrn.2187188

Loretti Isabella Dobrescu (Contact Author)

University of New South Wales, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Mihaela Neamtu

West University of Timisoara - Department of Economic, Informatics and Statistics ( email )

Bd. Vasile Parvan nr.4
Timisoara 300223, Timis 330023
Romania

Gabriela Mircea

West University of Timisoara - Department of Economic Informatics and Statistics ( email )

Timisoara, 300115
Romania

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