Related papers: Bubbles and Market Crashes
We present an interacting-agent model of speculative activity explaining bubbles and crashes in stock markets. We describe stock markets through an infinite-range Ising model to formulate the tendency of traders getting influenced by the…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…
The drift burst hypothesis postulates the existence of short-lived locally explosive trends in the price paths of financial assets. The recent U.S. equity and treasury flash crashes can be viewed as two high-profile manifestations of such…
Establishing unambiguously the existence of speculative bubbles is an on-going controversy complicated by the need of defining a model of fundamental prices. Here, we present a novel empirical method which bypasses all the difficulties of…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
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…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
Using a recently introduced rational expectation model of bubbles, based on the interplay between stochasticity and positive feedbacks of prices on returns and volatility, we develop a new methodology to test how this model classifies 9…
Pertaining to Agent-based Computational Economics (ACE), this work presents two models for the rise and downfall of speculative bubbles through an exchange price fixing based on double auction mechanisms. The first model is based on a…
Many studies assume stock prices follow a random process known as geometric Brownian motion. Although approximately correct, this model fails to explain the frequent occurrence of extreme price movements, such as stock market crashes. Using…
Oft-cited causes of mini-flash crashes include human errors, endogenous feedback loops, the nature of modern liquidity provision, fundamental value shocks, and market fragmentation. We develop a mathematical model which captures aspects of…
This paper studies the equilibrium price of a continuous time asset traded in a market with heterogeneous investors. We consider a positive mean reverting asset and two groups of investors who have different beliefs on the speed of mean…
Proving the existence of speculative financial bubbles even a posteriori has proven exceedingly difficult so anticipating a speculative bubble ex ante would at first seem an impossible task. Still as illustrated by the recent turmoil in…
By investigating nonfungible tokens (NFTs), we provide the first systematic study of retail investor behavior through asset bubbles. Given that NFTs are recorded in public blockchains, we are able to track investor behavior over time,…
In retrospect, the experimental findings on competitive market behavior called for a revival of the old, classical, view of competition as a collective higgling and bargaining process (as opposed to price-taking behaviors) founded on…
The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations. We find occurrences of non-stationary chaos, or speculative bubble, are caused by the heterogeneity of…
The problem of investing into a cryptocurrency market requires good understanding of the processes that regulate the price of the currency. In this paper we offer a view of a cryptocurrency market as an environment for realization of a…
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…
We define and study a rather complex market model, inspired from the Santa Fe artificial market and the Minority Game. Agents have different strategies among which they can choose, according to their relative profitability, with the…