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EFFECTS OF CONTRARIAN INVESTOR TYPE IN ASSET PRICE DYNAMICS

NATASHA KIRBY

Department of Applied Mathematics, University of Western Ontario, London, ON, Canada N6A 5B7, Canada

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and

ANDREW FOSTER

Department of Mathematics and Statistics, Memorial University of Newfoundland, St. John's, NL, Canada A1C 5S7, Canada

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https://doi.org/10.1142/S0218127409024244Cited by:1 (Source: Crossref)

Abstract

We develop an asset pricing model based on the interaction of heterogeneous trading groups. In addition to the two main trader groups, fundamentalists and trend-chasing chartists, we include a third significant group known as contrarian chartists. We model the case of opportunistic contrarian behavior, where the contrarian group disagrees with the trend-chasing chartists only when the return differential is high. We also consider absolute contrarian behavior, in which the contrarians consistently disagree with trend-chasers. The models are nonlinear planar maps, exhibiting period doubling, Neimark–Sacker and global bifurcations leading to local chaotic behavior. Absolute contrarian behavior is found to have a moderating effect on price change, while opportunistic contrarian behavior is found to further complicate the price cycles present in other models.

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