1,721,220 research outputs found
Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear dynamics approach
Full text linkWe combine a standard stock-flow housing market model, incorporating explicit relationships between house prices, the housing stock, and the rent level, with a parsimonious expectation formation scheme of housing market investors, reflecting an evolving mix of extrapolative and regressive expectation rules. The model results in a two-dimensional discrete-time nonlinear dynamical system. Based on realistic parameters, the model is able to generate endogenous boom-bust housing market dynamics with lasting periods of overvaluation and overbuilding. We thus exploit our model to investigate how real forces, in particular supply conditions, interact with expectations-driven housing market fluctuations
Speculative asset price dynamics and wealth taxes
Full text linkBased on the seminal asset-pricing model by Brock and Hommes (J Econ Dyn Control 22:1235–1274, 1998), we analytically show that higher wealth taxes increase the risky asset’s fundamental value, enlarge its local stability domain, may prevent the birth of nonfundamental steady states and, if they exist, reduce the risky asset’s mispricing. We furthermore find that higher wealth taxes may hinder the emergence of endogenous asset price oscillations and, if they exist, dampen their amplitudes. Since oscillatory price dynamics may be associated with lower mispricing than locally stable nonfundamental steady states, policymakers may not always want to suppress them by imposing (too low) wealth taxes. Overall, however, our study suggests that wealth taxes tend to stabilize the dynamics of financial markets
Fake News and Asset Price Dynamics
Full text linkWe explore the impact of fake news on asset price dynamics within the asset-pricing model of Brock and Hommes (Brock, W. A., and C. H. Hommes. 1998. "Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model." Journal of Economic Dynamics and Control 22 (8): 1235-74). By polluting the information landscape, fake news interferes with agents' perception of the dividend process of the risky asset. Our analysis reveals that fake news decreases the steady-state price of the risky asset by making it even more risky. Moreover, fake news increases the market share of agents who use the destabilizing technical trading rule by rendering fundamental trading more difficult and costly. Instead of converging toward its steady state, the risky asset's price may thus be subject to wild fluctuations. As it turns out, these fluctuations are concentrated below the risky asset's steady-state price. We also show that fake news campaigns may allow certain agents to realize fraudulent profits
Steady states, stability and bifurcations in multi-asset market models
Full text linkWe provide a full analytical treatment of a multi-asset market model in which speculators have the choice between two risky and one safe asset. As it turns out, the dynamics of our model is driven by a four-dimensional nonlinear map and may undergo a transcritical, flip or Neimark-Sacker bifurcation. While the first bifurcation is associated with an undervaluation of the risky assets, the latter two may trigger (complex) endogenous dynamics. To facilitate our analysis, we first study a simpler two-dimensional setup of our model in which speculators can only switch between one risky and one safe asset
Nonlinear asset-price dynamics and stabilization policies
Full text linkWe first present a brief review of nonlinear asset-pricing models and contributions in which such models have been used as benchmarks to evaluate the effectiveness of a number of regulatory policy measures.
We then illustrate the functioning of one particular asset-pricing model—the seminal framework by Brock and Hommes (J Econ Dyn Control 22:1235–1274, 1998)—and its possible stabilization via a central authority that seeks to counter the destabilizing trading behavior of speculators. Our paper underlines that tools from the field of nonlinear
dynamical systems may foster our understanding of the functioning of asset markets, thereby enabling policymakers to design better trading environments in the future
Interactions between stock, bond and housing markets
Full text linkWe develop a model in which investors can participate in stock, bond and housing markets. Investors' market entry decisions are subject to herding effects and depend on the markets' price trends and on their mispricings. The dynamics of our model is governed by a four-dimensional nonlinear map and its unique inner steady state is characterized by standard present-value relations between dividends, rents and the bond rate. Amongst other things, we show that endogenous stock and housing market dynamics emerge, countercyclical to each other, if investors react strongly to the markets' price trends. Such a cross feedback reflects investors' tendency to transfer their enthusiasm from one speculative market to another
Heterogeneous speculators and asset price dynamics: further results from a one-dimensional discontinuous piecewise-linear map.
No full textOn the complicated price dynamics of a simple one-dimensional discontinuous financial market model with heterogeneous interacting traders
No full textPiecewise-Linear Maps and Their Application to Financial Markets
Full text linkThe goal of this paper is to review some work on agent-based financial market models in which the dynamics is driven by piecewise-linear maps. As we will see, such models allow deep analytical insights into the functioning of financial markets, may give rise to unexpected dynamics effects, allow explaining a number of important stylized facts of financial markets, and offer novel policy recommendations. However, much remains to be done in this rather new research field. We hope that our paper attracts more scientists to this area
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