Gaunersdorfer, A., Hommes, C. and Wagener, F. (2008). Bifurcation routes to volatility clustering under evolutionary learning Journal of Economic Behavior and Organization, 67(1):27--47.
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Affiliated authors
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Publication year2008
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JournalJournal of Economic Behavior and Organization
A simple asset pricing model with two types of boundedly rational traders, fundamentalists and chartists, is studied. Fractions of trader types change over time according to evolutionary learning, with chartists conditioning their forecasting rule upon deviations from a benchmark fundamental. Volatility clustering arises endogenously and two generic mechanisms are proposed as an explanation: (1) coexistence of a stable steady state and a stable limit cycle, due to a so-called Chenciner bifurcation of the system and (2) intermittency and associated bifurcation routes to strange attractors. Economic intuition as to why these phenomena arise in nonlinear multi-agent evolutionary systems is provided.