Related papers: Moving averages and markets inefficiency

We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…

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…

Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…

The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…

Mounting empirical evidence suggests that the observed extreme prices within a trading period can provide valuable information about the volatility of the process within that period. In this paper we define a class of stochastic volatility…

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…

Stock price change in financial market occurs through transactions in analogy with diffusion in stochastic physical systems. The analysis of price changes in real markets shows that long-range correlations of price fluctuations largely…

We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…

Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…

For the pedestrian observer, financial markets look completely random with erratic and uncontrollable behavior. To a large extend, this is correct. At first approximation the difference between real price changes and the random walk model…

In the seminal work [9], several macroscopic market observables have been introduced, in an attempt to find characteristics capturing the diversity of a financial market. Despite the crucial importance of such observables for investment…

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…

We construct a general stochastic process and prove weak convergence results. It is scaled in space and through the parameters of its distribution. We show that our simplified scaling is equivalent to time scaling used frequently. The…

There are two possible ways of interpreting the seemingly stochastic nature of financial markets: the Efficient Market Hypothesis (EMH) and a set of stylized facts that drive the behavior of the markets. We show evidence for some of the…

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…

This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…

We review the evidence that the erratic dynamics of markets is to a large extent of endogenous origin, i.e. determined by the trading activity itself and not due to the rational processing of exogenous news. In order to understand why and…

As a typical representation of complex networks studied relatively thoroughly, financial market presents some special details, such as its nonconservation and opinions spreading. In this model, agents congregate to form some clusters, which…

The modelling of financial markets presents a problem which is both theoretically challenging and practically important. The theoretical aspects concern the issue of market efficiency which may even have political implications…

We propose a heterogeneous agent market model (HAM) in continuous time. The market is populated by fundamental traders and chartists, who both use simple linear trading rules. Most of the related literature explores stability, price…