| Nonlinear Dynamics, Psychology, and Life Sciences, Vol. 7, Iss. 3, Jul, 2003, pp. 245-262 @2003 Society for Chaos Theory in Psychology & Life Sciences Speculative Behavior and Asset Price Dynamics Abstract: 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 dynamics. The model endogenously replicates the stylized facts of excess volatility, high trading volumes, shifts in the level of asset prices, and volatility clustering. Keywords: financial markets, nonlinear dynamics and chaos, technical and fundamental analysis |