Emergent volatility in asset markets with heterogeneous agents

This paper examines the emergence of complex volatility in dynamic asset ma rkets when there are heterogeneous agents. A discrete formulation is studie d with two categories of market participants, fundamentalist traders who bu y when the asset price is below the fundamental value and sell when it is a bove and noise traders who use moving average technical trading rules that can lead them to chase trends. Agents switch from one type of strategy to t he other according to relative returns. A variety of outcomes are studied u sing numerical simulation, including variation of market price responsivene ss to changes in excess demand, in switching behavior, and the introduction of noise. Bifurcation analysis of certain parameters is presented.