Nonlinear asset-price dynamics and stabilization policies

Faculty/Professorship: Economic Policy  
Author(s): Schmitt, Noemi ; Tramontana, Fabio; Westerhoff, Frank H.  
Title of the Journal: Nonlinear Dynamics
ISSN: 0924-090X, 1573-269X
Year of publication: 2020
Volume: 102
Issue: 2
Pages: 1045-1070
Language(s): English
DOI: 10.1007/s11071-020-05828-8
We first present a brief review of nonlinear asset-pricing models and contributions in which such models have been used as benchmarks to evaluate the effectiveness of a number of regulatory policy measures. We then illustrate the functioning of one particular asset-pricing model—the seminal framework by Brock and Hommes (J Econ Dyn Control 22:1235–1274, 1998)—and its possible stabilization via a central authority that seeks to counter the destabilizing trading behavior of speculators. Our paper underlines that tools from the field of nonlinear dynamical systems may foster our understanding of the functioning of asset markets, thereby enabling policymakers to design better trading environments in the future.
GND Keywords: Wertpapier; Kaptialmarkt; Preisbildung; Capital-Asset-Pricing-Modell; Stabilisierung; Verzweigung <Mathematik>; Nichtlineares Regressionsmodell
Keywords: Boom-bust cycles, Asset-pricing models, Stabilization policies, Nonlinear dynamical systems, Steady states, Stability and bifurcation analysis, Chaos
DDC Classification: 650 Management & public relations  
RVK Classification: QK 622   
Peer Reviewed: Ja
International Distribution: Ja
Type: Article
Release Date: 4. January 2022