Related papers: Speculation and Power Law
In this paper we explain the wild fluctuations of financial prices from the intrinsic amplifying feedback of speculative supply and demand. Formally, we show that an asset return follows a multiplicative random growth with exogenous input,…
We discuss several models in order to shed light on the origin of power-law distributions and power-law correlations in financial time series. From an empirical point of view, the exponents describing the tails of the price increments…
We show that there is a common mode of origin for the power laws observed in two different models: (i) the Pareto law for the distribution of money among the agents with random saving propensities in an ideal gas-like market model and (ii)…
When the probability of measuring a particular value of some quantity varies inversely as a power of that value, the quantity is said to follow a power law, also known variously as Zipf's law or the Pareto distribution. Power laws appear…
Economy is demanding new models, able to understand and predict the evolution of markets. To this respect, Econophysics offers models of markets as complex systems, that try to comprehend macro-, system-wide states of the economy from the…
More than one billion data sampled with different frequencies from several financial instruments were investigated with the aim of testing whether they involve power law. As a result, a known power law with the power exponent around -4 was…
Models of auctions or tendering processes are introduced. In every round of bidding the players select their bid from a probability distribution and whenever a bid is unsuccessful, it is discarded and replaced. For simple models, the…
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…
Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…
Following a long tradition of physicists who have noticed that the Ising model provides a general background to build realistic models of social interactions, we study a model of financial price dynamics resulting from the collective…
Using a model based on generalised Lotka Volterra dynamics together with some recent results for the solution of generalised Langevin equations, we show that the equilibrium solution for the probability distribution of wealth has two…
We study the distributions of money in a simple closed economic system for different types of monetary transactions. We know that for arbitrary and random sharing but locally conserving money transactions, the money distribution goes to the…
The power law is ubiquitous in natural and social phenomena, and is considered as a universal relationship between the frequency and its rank for diverse social systems. However, a general model is still lacking to interpret why these…
We investigate the mechanisms behind the power-law distribution of stock returns using artificial market simulations. While traditional financial theory assumes Gaussian price fluctuations, empirical studies consistently show that the tails…
This paper introduces nonparametric econometric methods that characterize general power law distributions under basic stability conditions. These methods extend the literature on power laws in the social sciences in several directions.…
A simple Ising spin model which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site,…
Involving effects of media, opinion leader and other agents on the opinion of individuals of market society, a trader based model is developed and utilized to simulate price via supply and demand. Pronounced effects are considered with…
This study investigates the emergence of power-law and other concentrated distributions through a feedback loop model in crowd interactions. Agents act by their response functions to observations and external forces, while observations…
The quotient of random variables with normal distributions is examined and proven to have have power law decay, with density $f\left( x\right) \simeq f_{0}x^{-2}$, with the coefficient depending on the means and variances of the numerator…
Financial volatility obeys two fascinating empirical regularities that apply to various assets, on various markets, and on various time scales: it is fat-tailed (more precisely power-law distributed) and it tends to be clustered in time.…