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In complex systems like financial market, risk tolerance of individuals is crucial for system resilience.The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for…
We study the cause of large fluctuations in prices in the London Stock Exchange. This is done at the microscopic level of individual events, where an event is the placement or cancellation of an order to buy or sell. We show that price…
We present a simple agent-based model to study the development of a bubble and the consequential crash and investigate how their proximate triggering factor might relate to their fundamental mechanism, and vice versa. Our agents invest…
Complex evolving systems such as the biosphere, ecosystems and societies exhibit sudden collapses, for reasons that are only partially understood. Here we study this phenomenon using a mathematical model of a system that evolves under…
Large variations in stock prices happen with sufficient frequency to raise doubts about existing models, which all fail to account for non-Gaussian statistics. We construct simple models of a stock market, and argue that the large…
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take…
Macroeconomic fluctuations and the narratives that shape them form a mutually reinforcing cycle: public discourse can spur behavioural changes leading to economic shifts, which then result in changes in the stories that propagate. We show…
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices…
In this short note we discuss recent attempts to describe pre-crash market dynamics with analogies from theory of critical phenomena.
We show that infinite divisibility of a trading commodity leads to a self-sustained price bubble when traders use adaptive investment strategies. The adaptive strategy can be viewed as a psychological response of a trader to the situation…
In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this…
As we show by using notions of equilibrium in infinite sequential games, crashes or financial escalations are rational for economic or environmental agents, who have a vision of an infinite world. This contradicts a picture of a…
The principal aim of this work is the evidence on empirical way that catastrophic bifurcation breakdowns or transitions, proceeded by flickering phenomenon, are present on notoriously significant and unpredictable financial markets.…
In this empirical paper we show that in the months following a crash there is a distinct connection between the fall of stock prices and the increase in the range of interest rates for a sample of bonds. This variable, which is often…
Asset liquidity in modern financial markets is a key but elusive concept. A market is often said to be liquid when the prevailing structure of transactions provides a prompt and secure link between the demand and supply of assets, thus…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
This paper highlights the role of risk neutral investors in generating endogenous bubbles in derivatives markets. We find that a market for derivatives, which has all the features of a perfect market except completeness and has some risk…
This study evaluates the scale-dependent informational efficiency of stock markets using the Financial Chaos Index, a tensor-eigenvalue-based measure of realized volatility. Incorporating Granger causality and network-theoretic analysis…
This paper presents an exclusive classification of the largest crashes in Dow Jones Industrial Average (DJIA), SP500 and NASDAQ in the past century. Crashes are objectively defined as the top-rank filtered drawdowns (loss from the last…
We discuss - in what is intended to be a pedagogical fashion - a criterion, which is a lower bound on a certain ratio, for when a stock (or a similar instrument) is not a good investment in the long term, which can happen even if the…