Related papers: Speculation and Power Law
We consider an ideal closed stock market, in which 100 traders have economic activities. The assets of the traders change through buying and selling stocks. We simulate the assets under conservation of both total currency and total number…
We introduce a simple generalization of rational bubble models which removes the fundamental problem discovered by [Lux and Sornette, 1999] that the distribution of returns is a power law with exponent less than 1, in contradiction with…
We introduce a system of kinetic equations describing an exchange market consisting of two populations of agents (dealers and speculators) expressing the same preferences for two goods, but applying different strategies in their exchanges.…
Stock prices are observed to be random walks in time despite a strong, long term memory in the signs of trades (buys or sells). Lillo and Farmer have recently suggested that these correlations are compensated by opposite long ranged…
Several problems arising in Economics and Finance are analyzed using concepts and quantitative methods from Physics. Here is the abridged abstact: Chapter 1: By analogy with energy, the equilibrium probability distribution of money must…
Power-law distributions with various exponents are studied. We first introduce a simple and generic model that reproduces Zipf's law. We can regard this model both as the time evolution of the population of cities and that of the asset…
We consider a market where many agents trade many different types of products with each other. We model development of collective modes in this market, and quantify these by fluctuations that scale with time with a Hurst exponent of about…
Power law distributions have been repeatedly observed in a wide variety of socioeconomic, biological and technological areas. In many of the observations, e.g., city populations and sizes of living organisms, the objects of interest evolve…
In a recent Nature paper, Gabaix et al. \cite{Gabaix03} presented a theory to explain the power law tail of price fluctuations. The main points of their theory are that volume fluctuations, which have a power law tail with exponent roughly…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
We introduce a stochastic model to explain a double power-law distribution which exhibits two different Paretian behaviors in the upper and the lower tail and widely exists in social and economic systems. The model incorporates fitness…
A mechanism is proposed for the appearance of power law distributions in various complex systems. It is shown that in a conservative mechanical system composed of subsystems with different numbers of degrees of freedom a robust power-law…
A numerical agent-based spin model of financial markets, based on the Potts model from statistical mechanics, with a novel interpretation of the spin variable (as regards financial-market models) is presented. In this model, a value of the…
We study a generic model for self-referential behaviour in financial markets, where agents attempt to use some (possibly fictitious) causal correlations between a certain quantitative information and the price itself. This correlation is…
Power-law distributions are common, particularly in social physics. Here, we explore whether power-laws might arise as a consequence of a general variational principle for stochastic processes. We describe communities of 'social particles',…
Financial models do not merely analyse markets, but actively shape them. This effect, known as performativity, describes how financial theories and the subsequent actions based on them influence market processes, by creating self-fulfilling…
The available liquidity at any time in financial markets falls largely short of the typical size of the orders that institutional investors would trade. In order to reduce the impact on prices due to the execution of large orders, traders…
In this article we discuss the distribution of asset price movements by the market potential function. From the principle of free energy minimization we analyze two different kinds of market potentials. We obtain a U-shaped potential when…