An evolutive financial market model with animal spirits: imitation and endogenous beliefs

Fausto Cavalli, A. Naimzada, M. Pireddu

Risultato della ricerca: Contributo in rivistaArticolo in rivista

6 Citazioni (Scopus)


We propose a financial market model with optimistic and pessimistic fundamentalists who, respectively, overestimate and underestimate the true fundamental value due to ambiguity in the stock market. We assume that agents form their beliefs about the fundamental value through an imitative process, considering the relative ability shown by optimists and pessimists in guessing the realized stock price. We also introduce an endogenous switching mechanism, allowing agents to switch to the other group of speculators if they performed better in terms of relative profits. Moreover, the stock price is determined by a nonlinear mechanism. We study, via analytical and numerical tools, the stability of the unique steady state, its bifurcations and the emergence of complex behaviors, with possible multistability phenomena. To quantify the global propensity to optimism/pessimism of the market, we introduce an index, depending on pessimists’ and optimists’ beliefs and shares, thanks to which we are able to show that the occurrence of the waves of optimism and pessimism are due to the joint effect of imitation and switching mechanism. Finally, we perform a statistical analysis of a stochastically perturbed version of the model, which high lights fat tails and excess volatility in the returns distributions, as well as bubbles and crashes for stock prices, in agreement with the empirical literature.
Lingua originaleEnglish
pagine (da-a)1007-1040
Numero di pagine34
RivistaJournal of Evolutionary Economics
Stato di pubblicazionePubblicato - 2017


  • Animal spirits
  • Bifurcations
  • Business, Management and Accounting (all)
  • Complex dynamics
  • Economics and Econometrics
  • Evolutionary selection
  • Financial markets
  • Imitative process


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