TI Complexity seminar: Frank Westerhoff (University of Bamberg)
'Trend followers, contrarians and fundamentalists: Explaining the dynamics of financial markets'
We develop a simple financial market model in which speculators rely on trend following, contrarian and fundamental trading rules to determine their orders. Speculators’ probabilistic rule selection behavior, the only type of randomness in our model, depends on past and future performance indicators. Estimating our model using the method of simulated moments reveals that it is able to match a number of important stylized facts of financial markets. For a large number of speculators, the model dynamics is driven by an analytically tractable nonlinear deterministic map. An in-depth investigation of this map proves quite helpful in understanding the model’s functioning.
Please contact Anita Kopanyi-Peuker if you have any questions about the lecture.
Tinbergen Institute Amsterdam
Gustav Mahlerplein 117