Market stability switches in a continuous-time financial market with heterogeneous beliefs

Xue Zhong He, Kai Li, Junjie Wei, Min Zheng

Research output: Contribution to journalArticlepeer-review

29 Citations (Scopus)


By considering a financial market of fundamentalists and trend followers in which the price trend of trend followers is formed as a weighted average of historical prices, we establish a continuous-time financial market model with time delay and examine the impact of time delay on market price dynamics. Conditions for the stability of the fundamental price in terms of agents' behavior parameters and time delay are obtained. In particular, it is found that an increase in time delay can not only destabilize the market price but also stabilize an otherwise unstable market price, leading to stability switching as delay increases. These interesting phenomena shed new light in understanding of mechanism on the market stability. When the fundamental price becomes unstable through Hopf bifurcations, sufficient conditions on the stability and global existence of the periodic solution are obtained.
Original languageEnglish
Pages (from-to)1432-1442
Number of pages11
JournalEconomic Modelling
Issue number6
Publication statusPublished - 2009
Externally publishedYes


  • Asset price
  • Fundamentalists
  • Trend followers
  • Delay differential equations
  • Stability
  • Bifurcations


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