A synergetic approach to speculative price volatility

Abstract

In this paper we propose a heterogeneous agents model that represents speculative dynamics by using the synergetic approach [5]. We consider the markets for three securities (a stock, a bond, and a foreign currency). Each market consists of two typical types of investors: fundamentalists and bandwagon traders. We show the characteristic patterns of speculative prices (speculative bubbles and speculative chaos) which are generated by trading between the fundamentalists and bandwagon traders.