The Impact of Information Signals on Market Prices When Agents Have Non-Linear Trading Rules

21 Pages Posted: 23 Feb 2006 Last revised: 12 Feb 2009

See all articles by Catherine Kyrtsou

Catherine Kyrtsou

University of Macedonia - Department of Economics; University of Strasbourg - BETA

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics

Date Written: January 1, 2009

Abstract

Several methods have been developed for filtering seasonal structures and extreme returns in financial and economic series. The theoretical support for this approach is rather questionable since it focuses on the effects of shocks on prices and not on their sources. The non-proportional character of non-linearity confirms that removing outliers or seasonality does not help to reach the true generating system of market dynamics. Thus, taking into account that the underlying process of economic series is highly non-linear we cannot be sure a priori what the impact of new information will be on the dynamic structure of the system. The main contribution of this paper is to demonstrate using the methodology of simulations the eventual distortions in time series data arising from the arrival of news when agents' follow non-linear trading strategies. We argue that if news can really modify the dynamical behaviour of a system, then the methodology of filtering seasonality and outliers needs to be re-examined.

Keywords: non-linearity, Logistic equation, Heteroskedastic Mackey-Glass model, attractors, information signals, spurious seasonality

JEL Classification: C15, C22, C52, G14

Suggested Citation

Kyrtsou, Catherine and Malliaris, A. (Tassos) G., The Impact of Information Signals on Market Prices When Agents Have Non-Linear Trading Rules (January 1, 2009). Economic Modelling, Vol. 26, pp. 167-176, 2009. Available at SSRN: https://ssrn.com/abstract=885665

Catherine Kyrtsou (Contact Author)

University of Macedonia - Department of Economics ( email )

Egnatia str., 156
Thessaloniki 54006
Greece

HOME PAGE: http://www.uom.gr/index.php?newlang=eng&tmima=3&categorymenu=2

University of Strasbourg - BETA

61 avenue de la Forêt Noire
67085 Strasbourg Cedex
France

HOME PAGE: http://cournot2.u-strasbg.fr/users/beta/

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics ( email )

16 E. Pearson Ave
Quinlan School of Business
Chicago, IL 60611
United States
312-915-6063 (Phone)

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