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This paper proposes a simple chartist-fundamentalist model in which we allow for nonlinear time variation in chartists ’ extrapolation rate. Estimation of the model using monthly data for the major currencies vis-á-vis the US dollar shows that the model is significant in-sample and that it has out-of-sample predictive power for some of the currencies. We investigate the power of tests used in the literature to detect predictability against the alternative of the proposed model. We find that the short-term unpredictability and the long-term predictability are consistent with the model. The short-term unpredictability might be caused by the presence of weak nonlinearities that are difficult to detect at available sample sizes.

We introduce a minimal Agent Based Model for financial markets to understand the nature and Self-Organization of the Stylized Facts. The model is minimal in the sense that we try to identify the essential ingredients to reproduce the main most important deviations of price time series from a Random Walk behavior. We focus on four essential ingredients: fundamentalist agents which tend to stabilize the market; chartist agents which induce destabilization; analysis of price behavior for the two strategies; herding behavior which governs the possibility of changing strategy. Bubbles and crashes correspond to situations dominated by chartists, while fundamentalists provide a long time stability (on average). The Stylized Facts are shown to correspond to an intermittent behavior which occurs only for a finite value of the number of agents N. Therefore they correspond to finite size effect which, however, can occur at different time scales. We propose a new mechanism for the Self-Organization of this state which is linked to the existence of a threshold for the agents to be active or not active. The feedback between price fluctuations and number of active agents represent a crucial element for this state of Self-Organized-Intermittency. The model can be easily generalized to consider more realistic variants. 1

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According to the chartist-fundamentalist approach, exchange rate fluctuations are at least partially driven by the interactions of heterogeneous boundedly rational speculators who use different trading strategies to determine their orders. This framework is guided by the observation that professional foreign exchange market participants indeed rely on both technical and fundamental analysis rules. Our goal is to survey such models and discuss some key mechanisms which may produce endogenous complex exchange rate dynamics.

We present a general methodology to automate the search for equilibrium strategies in games derived from computational experimentation. Our approach interleaves empirical game-theoretic analysis with reinforcement learning. We apply this methodology to the classic Continuous Double Auction game, conducting the most comprehensive CDA strategic study published to date. Empirical game analysis confirms prior findings about the relative performance of known strategies. Reinforcement learning derives new bidding strategies from the empirical equilibrium environment. Iterative application of this approach yields strategies stronger than any other published CDA bidding policy, culminating in a new Nash equilibrium supported exclusively by our learned strategies.

We develop a discrete-time model in which the stock markets of two countries are linked via and with the foreign exchange market. The foreign exchange market is characterized by nonlinear interactions between technical and fundamental traders. Such interactions may gen-erate complex dynamics and recurrent switching between “bull ” and “bear ” market phases via a well-known pitchfork and period-doubling bifurcation path, when technical traders become more aggressive. The two stock markets are populated by fundamentalists, and prices tend to evolve towards stable steady states, driven by linear laws of motion. A connection between such markets is established by allowing investors to trade abroad, and the resulting three-dimensional dynamical system is analyzed. One goal of our paper is to explore potential spill-over effects between foreign exchange and stock markets. A second, related goal is to study how the bifur-cation sequence which characterizes the market with heterogeneous speculators is modified in the presence of interactions with other markets.

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This paper introduces an artificial payment card market in which we model the interactions between consumers, merchants and competing card issuers with the aim of determining the optimal pricing structure for card issuers. We allow card issuers to charge consumers and merchants fixed fees, provide net benefits from card usage and engage in marketing activities. The demand by consumers and merchants is only affected by the size of the fixed fees and the optimal pricing structure consists of a sizeable fixed fee to consumers, no fixed fee to merchants, negative net benefits to consumers and merchants as well as a high marketing effort.