Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism

In contrast with the canonical models, Naimzada and Ricchiuti (2008, 2009) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability in financial markets. Differently from Naimzada and Ricchiuti (2008, 2009), we assume the market maker employs a so-called multiplicative price mechanism (Tuinstra, 2002 and Zhu et al., 2009). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.