Nonlinear Dynamics and Stability in a Multi-Group Asset Flow Model

Abstract

The multi-group asset flow model for asset price dynamics incorporates distinct motivations, e.g., trend and fundamentals (value) and assessments of value by different groups of investors. The stability and bifurcation properties are established for the curve of equilibria. We prove that if all trader groups focus on fundamentals, then all equilibria are stable. For systems in which there is one fundamental and one momentum (trend) group, we establish conditions for stability. In particular, an equilibrium that is stable becomes unstable as the time scale on which momentum investors focus diminishes. The computations examine the excursions, which we define as the maximum deviation in price of the trajectory from its initial price located near the curve of equilibria.

Keywords: asset price dynamics, asset flow, momentum, trend, fundamental value, stability of price dynamics