Journal ArticleDOI
The socio-economic dynamics of speculative markets: interacting agents, chaos, and the fat tails of return distributions
Thomas Lux,Thomas Lux +1 more
TLDR
In this article, the authors developed a model of the social and economic interaction of speculators in a securities or foreign exchange market, where both chartist and fundamentalist strategies are pursued by traders.Abstract:
This paper develops a model of the social and economic interaction of speculators in a securities or foreign exchange market. Both chartist and fundamentalist strategies are pursued by traders. The formalization of chartists behavior combines elements of mimetic contagion and trend chasing leading to waves of optimism or pessimism. Furthermore, changes of strategies from chartist to fundamentalist behavior and vice versa occur because speculators compare the performance of both strategies. The dynamic system under study encompasses the time development of the distribution of attitudes among traders as well as price adjustment. Chaotic attractors are found within a broad range of parameter values. The distributions of returns derived from chaotic trajectories of the model share important characteristics of empirical data: they exhibit high peaks around the mean as well as fat tails (leptokurtosis) and become less leptokurtotic under time aggregation.read more
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Book
Introduction to Econophysics: Correlations and Complexity in Finance
TL;DR: Economists and workers in the financial world will find useful the presentation of empirical analysis methods and well-formulated theoretical tools that might help describe systems composed of a huge number of interacting subsystems.
Journal ArticleDOI
Scaling and criticality in a stochastic multi-agent model of a financial market
Thomas Lux,Michele Marchesi +1 more
TL;DR: In this paper, the authors describe a multi-agent model of financial markets which supports the idea that scaling arises from mutual interactions of participants, and they find that it generates such behaviour as a result of interactions between agents.
Journal ArticleDOI
Heterogeneous Agent Models in Economics and Finance
Cars Hommes,Cars Hommes +1 more
TL;DR: A survey of dynamic heterogeneous agent models (HAMs) in economics and finance can be found in this article, where the authors focus on simple models that are tractable by analytic methods in combination with computational tools.
Book
The Politics of Attention: How Government Prioritizes Problems
TL;DR: Jones and Baumgartner as discussed by the authors studied how politicians manage the flood of information from a wide range of sources, and which issues do they pay attention to and why, in American politics.
Journal ArticleDOI
Time series properties of an artificial stock market
TL;DR: In this article, the authors present results from an experimental computer simulated stock market, where artificial intelligence algorithms take on the role of traders and make predictions about the future, and buy and sell stock as indicated by their expectations of future risk and return.
References
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Journal ArticleDOI
Noise Trader Risk in Financial Markets
TL;DR: In this article, the authors present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns.
Book ChapterDOI
The variation of certain speculative prices
TL;DR: The classic model of the temporal variation of speculative prices (Bachelier 1900) assumes that successive changes of a price Z(t) are independent Gaussian random variables as discussed by the authors.
Posted Content
The Variation of Certain Speculative Prices
TL;DR: In this paper, a new model of price behavior in speculative markets is proposed, which is a generalization of the continuous random walk of Bachelier process applied to InZ(t) instead of Z(t), where the Gaussian distribution is replaced throughout by another family of probability laws referred to as stable Paretian.
Book
Manias, Panics, and Crashes: A History of Financial Crises
TL;DR: In this article, the authors discuss the history of the financial crisis and its role in economic and monetary instability, including speculative manias, economic booms, and international contagion, and the international lender of last resort.