In this paper, we discuss a scaling approach to business fluctuations. Our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to (re)discover a set of stylized facts which have to be satisfactorily accounted for in their models. Standard macroeconomics, based on a reductionist approach centered on the representative agent, is definitely badly equipped for this task. On the contrary, we show that a simple financial fragility agent-based model, based on complex interactions of heterogeneous agents, is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision.
In this paper we investigate the effects of herding on asset price dynamics during continuous trading. We focus on the role of interaction among traders, and we investigate the dynamics emerging when we allow for a tendency to mimic the actions of other investors, that is, to engage in herd behavior. The model, built as a mean field in a binary setting (buy/sell decisions of a risky asset), is expressed by a three-dimensional discrete dynamical system describing the evolution of the asset price, its expected price, and its excess demand. We show that such dynamical system can be reduced to a unidirectionally coupled system. In line with the rational herd behavior literature [Bikhchandani, S., Sharma, S. (2000), Herd Behavior in Financial Markets: A Review. Working paper, IMF, WP/00/48], situations of multistability are observed, characterized by strong path dependence; that is, the dynamics of the system are strongly influenced by historical accidents. We describe the different kinds of dynamic behavior observed, and we characterize the bifurcations that mark the transitions between qualitatively different time evolutions. Some situations give rise to high sensitivity with respect to small changes of the parameters and/or initial conditions, including the possibility of invest or reject cascades (i.e., sudden uncontrolled increases or crashes of the prices).
a b s t r a c tIn this paper we analyze the Ancona wholesale fish market (MERITAN) where transactions take place in three simultaneous Dutch auctions. Our objective is to characterize the behavior of market participants and, in particular, that of buyers in such a market structure. Our analysis shows that buyer-seller relationships are less important than in a pairwise bargaining market such as the Marseille Fish market but that a significant amount of "loyalty" is still present under the auction mechanism. We provide an explanation of the "declining price paradox" for the fish market of Ancona by linking the rule used by the buyers to set their bid to the relationship between the variation in the price of the last transactions in the day and the quantity of fish available on that day. In fact, the average price tends to increase for the last transactions on days characterized by a limited supply of fish.
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