News and price returns from threshold behaviour and vice-versa: exact solution of a simple agent-based market model
Physics and Society
2009-11-11 v4 Statistical Mechanics
Trading and Market Microstructure
Abstract
Starting from an exact relationship between news, threshold and price return distributions in the stationary state, I discuss the ability of the Ghoulmie-Cont-Nadal model of traders to produce fat-tailed price returns. Under normal conditions, this model is not able to transform Gaussian news into fat-tailed price returns. When the variance of the news so small that only the players with zero threshold can possibly react to news, this model produces Levy-distributed price returns with a -1 exponent. In the special case of super-linear price impact functions, fat-tailed returns are obtained from well-behaved news.
Cite
@article{arxiv.physics/0510257,
title = {News and price returns from threshold behaviour and vice-versa: exact solution of a simple agent-based market model},
author = {Damien Challet},
journal= {arXiv preprint arXiv:physics/0510257},
year = {2009}
}
Comments
4 pages, 3 figures. This is quite possibly the final version. To appear in J. Phys A