Download or read book Herd Behavior and Aggregate Fluctuations in Financial Markets written by Rama Cont and published by . This book was released on 1998 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a simple model of a stock market where a random communication structure between agents gives rise to a heavy tails in the distribution of stock price variations in the form of an exponentially truncated power-law, similar to distributions observed in recent empirical studies of high frequency market data. Our model provides a link between two well-known market phenomena: the heavy tails observed in the distribution of stock market returns on one hand and 'herding' behavior in financial markets on the other hand. In particular, our study suggests a relation between the excess kurtosis observed in asset returns, the market order flow and the tendency of market participants to imitate each other.
Download or read book Herd Behavior and Agregate Fluctuations in Financial Markets written by Rama Cont and published by . This book was released on 1998 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Herd Behavior and Fat Tails in Financial Markets written by Makoto Nirei and published by . This book was released on 2006 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates that a generic herd behavior model generates a fat-tailed distribution of traders' aggregate actions. We consider a simultaneous-move game of traders who infer other traders' private information on the value of assets by observing their actions and decide whether to buy the asset or not. The number of buying actions in a Bayesian Nash equilibrium is characterized by a sum of a binomial process by introducing a fictitious tatonnement. Under a broad class of distributions for the private information, we show that the aggregate actions follow a power-law distribution with an exponential truncation. The empirical distribution of the daily returns of Samp;P 500 stocks is fitted by the model prediction, when the aggregate actions are translated into price movements either by an empirical volume-price impact function or by a market-maker who sets the price by incorporating the available information. This model nests the benchmark herd behavior model and the recent models of critical phenomena in the network of traders. The latter showed that the aggregate actions follow a power-law tailed distribution when the connectivity of networked traders is set at a critical level. In this context, we provide an economic reason why at all the rational herding behavior exhibits criticality in a general setting. Suppose that a good private information leads a trader to buy, whereas the other traders do not buy despite their observation of the action. Then their inactions reveal their private information partially. The total impact of the action on the revealed information is thus of order 1/N, where N is the total number of traders, if the private information is equally informative across the traders. When this is the case, the mean impact of the initial action on the other actions is roughly equal to one. The tatonnement triggered by the initial action becomes a martingale, in which the distribution of the total number of buying actions during the tatonnement exhibits a power-law tail. We further show that, when the static game is repeated over time, the triggering action almost surely occurs and the mean impact of the action in the chain reaction evolves toward the critical level. This implies that the rational learning of traders self-organizes their beliefs to the critical state at which a power-law clustering of actions emerges.
Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Herd Behavior in Financial Markets written by Mr.Sunil Sharma and published by INTERNATIONAL MONETARY FUND. This book was released on 2000-03-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?
Download or read book Handbook of Financial Markets Dynamics and Evolution written by Thorsten Hens and published by Elsevier. This book was released on 2009-06-12 with total page 607 pages. Available in PDF, EPUB and Kindle. Book excerpt: The models of portfolio selection and asset price dynamics in this volume seek to explain the market dynamics of asset prices. Presenting a range of analytical, empirical, and numerical techniques as well as several different modeling approaches, the authors depict the state of debate on the market selection hypothesis. By explicitly assuming the heterogeneity of investors, they present models that are descriptive and normative as well, making the volume useful for both finance theorists and financial practitioners. Explains the market dynamics of asset prices, offering insights about asset management approaches Assumes a heterogeneity of investors that yields descriptive and normative models of portfolio selections and asset pricing dynamics
Download or read book Herd Behavior in Financial Markets written by Marco Cipriani and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?
Download or read book Noise Traders and Herding Behavior written by Lee Scott Redding and published by International Monetary Fund. This book was released on 1996-09-01 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent developments in financial economics have included many explorations into market microstructure, that is, the internal functioning of markets and the ways in which they provide liquidity to traders. An important contribution of this literature is that prices can deviate from their fundamental values. This paper describes models of imperfect liquidity and improperly processed information in financial markets, focusing on the noise trader and investor herding literature. The motivations for this line of research are presented, followed by a description of some of the major contributions and tests of some of their empirical implications.
Download or read book Modeling Complexity in Economic and Social Systems written by Frank Schweitzer and published by World Scientific. This book was released on 2002 with total page 408 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economics and the social sciences are, in fact, the ?hard? sciences, as Herbert Simon argued, because the complexity of the problems dealt with cannot simply be reduced to analytically solvable models or decomposed into separate subprocesses. Nevertheless, in recent years, the emerging interdisciplinary ?sciences of complexity? have provided new methods and tools for tackling these problems, ranging from complex data analysis to sophisticated computer simulations. In particular, advanced methods developed in the natural sciences have recently also been applied to social and economic problems.The twenty-one chapters of this book reflect this modern development from various modeling perspectives (such as agent-based models, evolutionary game theory, reinforcement learning and neural network techniques, time series analysis, non-equilibrium macroscopic dynamics) and for a broad range of socio-economic applications (market dynamics, technological evolution, spatial dynamics and economic growth, decision processes, and agent societies). They jointly demonstrate a shift of perspective in economics and the social sciences that is allowing a new outlook in this field to emerge.
Download or read book Irrationality in financial markets written by Nelle Plotkin and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Minority Games written by Damien Challet and published by OUP Oxford. This book was released on 2004-11-04 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Minority Game is a physicist's attempt to explain market behaviour by the interaction between traders. With a minimal set of ingredients and drastic assumptions, this model reproduces market ecology among different types of traders. Its emphasis is on speculative trading and information flow. The book first describes the philosophy lying behind the conception of the Minority Game in 1997, and includes in particular a discussion about the El Farol bar problem. It then reviews the main steps in later developments, including both the theory and its applications to market phenomena. 'Minority Games' gives a colourful and stylized, but also realistic picture of how financial markets operate.
Download or read book Herd Behavior in Financial Markets written by and published by . This book was released on 2015 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Correlated Trades and Herd Behavior in the Stock Market written by Simon Jurkatis and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Herd behavior is often viewed as a significant threat for the stability and effciency of financial markets. This paper sheds new light on the relevance of herd behavior for observed correlation of trades. We introduce numerical simulations of a herd model to derive theory-guided predictions regarding the impact of various aspects of uncertainty on herding intensity. We test the predictions using a novel data set including all real-time transactions of institutional investors in the German stock market. In light of the model simulations, empirical results strongly suggest that the observed correlation of trades is mainly due to the common reaction of investors to new public information and should not be misinterpreted as herd behavior. -- Herd Behavior ; Institutional Trading ; Correlated Trading ; Model Simulation
Download or read book Herd Behavior Towards the Market Index written by Daxue Wang and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the cross-sectional variance of the betas to study herd behavior towards market index in major developed and emerging financial markets (categorized as developed group, Asian group, and Latin American group). We propose a robust regression technique to calculate the betas of the CAPM and those of the Fama-French three-factor model, with an intention to diminish the impact of multivariate outliers in return data. Through the estimated values obtained from a state space model, we examine the evolution of herding measures, especially their pattern around sudden events such as the 1997-1998 financial crises. This 1997-1998 turmoil turns out to have formed a turning point for most of the financial markets. We document a higher level of herding in emerging markets than in developed markets. We also find that the correlation of herding between two markets from the same group is higher than that between two markets from different groups. This paper will shed light on the calculation of beta and on the financial policy to understand the dynamics of herding in financial markets.
Download or read book Financial Econometrics and Empirical Market Microstructure written by Anil K. Bera and published by Springer. This book was released on 2014-11-18 with total page 282 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the era of Big Data our society is given the unique opportunity to understand the inner dynamics and behavior of complex socio-economic systems. Advances in the availability of very large databases, in capabilities for massive data mining, as well as progress in complex systems theory, multi-agent simulation and computational social science open the possibility of modeling phenomena never before successfully achieved. This contributed volume from the Perm Winter School address the problems of the mechanisms and statistics of the socio-economics system evolution with a focus on financial markets powered by the high-frequency data analysis.
Download or read book Econophysics written by Sitabhra Sinha and published by John Wiley & Sons. This book was released on 2010-12-06 with total page 371 pages. Available in PDF, EPUB and Kindle. Book excerpt: Filling the gap for an up-to-date textbook in this relatively new interdisciplinary research field, this volume provides readers with a thorough and comprehensive introduction. Based on extensive teaching experience, it includes numerous worked examples and highlights in special biographical boxes some of the most outstanding personalities and their contributions to both physics and economics. The whole is rounded off by several appendices containing important background material.
