Abstract

The paper highlights the role that speculation plays in making stock price fluctuation chaotic. The positive feedback produce by speculative behavior determines the general dynamics of stock prices. The price dynamics is described by a logistic equation. This logistic equation is also known as Verhulst equation. This equation was originally developed to describe the dynamic behavior of population of an organism. A discrete form of the Verhulst equation called as Ricker model is done to simulate the price dynamics. The simulation of the iterative process in the Ricker model demonstrates that speculation can produce chaos. By varying the value of the parameter describing speculation, the price dynamics becomes chaotic for sufficiently high degree of speculation. The extreme sensitivity to initial condition of a chaotic system produced the so-called

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