Related papers: Speculation and Power Law
Pareto law, which states that wealth distribution in societies have a power-law tail, has been a subject of intensive investigations in statistical physics community. Several models have been employed to explain this behavior. However, most…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
Understanding the innovation process, that is the underlying mechanisms through which novelties emerge, diffuse and trigger further novelties is undoubtedly of fundamental importance in many areas (biology, linguistics, social science and…
The distribution of wealth among the members of a society is herein assumed to result from two fundamental mechanisms, trade and investment. An empirical distribution of wealth shows an abrupt change between the low-medium range, that may…
An important class of economic models involve agents whose wealth changes due to transactions with other agents. Several authors have pointed out an analogy with kinetic theory, which describes molecules whose momentum and energy changes…
We present a novel microscopic stock market model consisting of a large number of random agents modeling traders in a market. Each agent is characterized by a set of parameters that serve to make iterated predictions of two successive…
A simple trading model based on pair pattern strategy space with holding periods is proposed. Power-law behaviors are observed for the return variance $\sigma^2$, the price impact $H$ and the predictability $K$ for both models with linear…
Financial markets display scale-free behavior in many different aspects. The power-law behavior of part of the distribution of individual wealth has been recognized by Pareto as early as the nineteenth century. Heavy-tailed and scale-free…
We introduce a new class of models in which a large number of "agents" organize under the influence of an externally imposed coherent noise. The model shows reorganization events whose size distribution closely follows a power law over many…
We characterize the statistical properties of a large number of agents on two major online auction sites. The measurements indicate that the total number of bids placed in a single category and the number of distinct auctions frequented by…
In this study we examine the evolution of price, volume, and the bid-ask spread after extreme 15 minute intraday price changes on the NYSE and the NASDAQ. We find that due to strong behavioral trading there is an overreaction. Furthermore…
We propose a stochastic map model of economic dynamics. In the last decade, an array of observations in economics has been investigated in the econophysics literature, a major example being the universal features of inequality in terms of…
We propose a new mechanism for generating power laws. Starting from a random walk, we first outline a simple derivation of the Fokker-Planck equation. By analogy, starting from a certain Markov chain, we derive a master equation for power…
Natural language data follows a power-law distribution, with most knowledge and skills appearing at very low frequency. While a common intuition suggests that reweighting or curating data towards a uniform distribution may help models…
We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset…
We revisit the "epsilon-intelligence" model of Toth et al.(2011), that was proposed as a minimal framework to understand the square-root dependence of the impact of meta-orders on volume in financial markets. The basic idea is that most of…
Despite many examples to the contrary, most models of elections assume that rules determining the winner will be followed. We present a model where elections are solely a public signal of the incumbent popularity, and citizens can protests…
Traders constantly consider the price impact associated with changing their positions. This paper seeks to understand how price impact emerges from the quoting strategies of market makers. To this end, market making is modeled as a dynamic…
We give a stochastic microscopic modelling of stock markets driven by continuous double auction. If we take into account the mimetic behavior of traders, when they place limit order, our virtual markets shows the power-law tail of the…
Keeping a basic tenet of economic theory, rational expectations, we model the nonlinear positive feedback between agents in the stock market as an interplay between nonlinearity and multiplicative noise. The derived hyperbolic stochastic…