We develop a novel financial market model in which the stock markets of two countries are linked via and with the foreign exchange market. To be precise, there are domestic and foreign speculators in each of the two stock markets which rely either on linear technical or linear fundamental trading strategies to determine their orders. Since foreign stock market speculators require foreign currency to conduct their trades, all three markets are connected. Our setup entails a natural nonlinearity which may cause persistent endogenous price dynamics. Moreover, we analytically show that market interactions can destabilize the model’s fundamental steady state.

R. DIECI, F. Westerhoff (2013). On the inherent instability of international financial markets: natural nonlinear interactions between stock and foreign exchange markets. APPLIED MATHEMATICS AND COMPUTATION, 221, 306-328 [10.1016/j.amc.2013.06.042].

On the inherent instability of international financial markets: natural nonlinear interactions between stock and foreign exchange markets

DIECI, ROBERTO;
2013

Abstract

We develop a novel financial market model in which the stock markets of two countries are linked via and with the foreign exchange market. To be precise, there are domestic and foreign speculators in each of the two stock markets which rely either on linear technical or linear fundamental trading strategies to determine their orders. Since foreign stock market speculators require foreign currency to conduct their trades, all three markets are connected. Our setup entails a natural nonlinearity which may cause persistent endogenous price dynamics. Moreover, we analytically show that market interactions can destabilize the model’s fundamental steady state.
2013
R. DIECI, F. Westerhoff (2013). On the inherent instability of international financial markets: natural nonlinear interactions between stock and foreign exchange markets. APPLIED MATHEMATICS AND COMPUTATION, 221, 306-328 [10.1016/j.amc.2013.06.042].
R. DIECI; F. Westerhoff
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/261531
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