2003b): Speculative behavior and asset price dynamics


This paper deals with speculative trading. Guided by empirical observations, a nonlinear deterministic asset pricing model is developed in which traders repeatedly choose between technical and fundamental analysis to determine their orders. The interaction between the trading rules produces complex dy-namics. The model endogenously replicates the stylized facts of excess volatil-ity, high trading volumes, shifts in the level of asset prices, and volatility clustering. KEY WORDS: financial markets; nonlinear dynamics and chaos; technical and fundamental analysis

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