6533b853fe1ef96bd12ac111

RESEARCH PRODUCT

Stochastic sensitivity of bull and bear states

Jochen JungeilgesJochen JungeilgesTatyana PerevalovaElena Maklakova

subject

CRITICAL INTENSITYEconomics and EconometricsVDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 21205 social sciencesAsset marketNON-SMOOTH MAPSType (model theory)01 natural sciencesNON-INVERTIBLE MAPS010305 fluids & plasmasNoiseSTOCHASTIC PRICE PROCESSTRANSITIONS BETWEEN STOCHASTIC FIXED POINTS0502 economics and business0103 physical sciencesEconometricsSensitivity (control systems)Asset (economics)050207 economicsBusiness and International ManagementSTOCHASTIC SENSITIVITY FUNCTIONFocus (optics)Parametric statisticsMathematics

description

We study the price dynamics generated by a stochastic version of a Day–Huang type asset market model with heterogenous, interacting market participants. To facilitate the analysis, we introduce a methodology that allows us to assess the consequences of changes in uncertainty on the dynamics of an asset price process close to stable equilibria. In particular, we focus on noise-induced transitions between bull and bear states of the market under additive as well as parametric noise. Our results are obtained by combining the stochastic sensitivity function (SSF) approach, a mixture of analytical and numerical techniques, due to Mil’shtein and Ryashko (1995) with concepts and techniques from the study of non-smooth 1D maps. We find that the stochastic sensitivity of the respective bull and bear equilibria in the presence of additive noise is higher than under parametric noise. Thus, recurrent transitions are likely to be observed already for relatively low intensities of additive noise. © 2021, The Author(s). Universitetet i Agder, UiA

yearjournalcountryeditionlanguage
2021-02-14Journal of Economic Interaction and Coordination
https://doi.org/10.1007/s11403-020-00313-2