The Grounds For Time Dependent Market Potentials From Dealers' Dynamics

TL;DR

This paper investigates how dealer feedback mechanisms influence market potential forces, revealing that positive feedback leads to repulsive forces and negative feedback results in attractive forces in market dynamics.

Contribution

It introduces a method to estimate market potential forces from artificial time series and highlights the role of dealer feedback in shaping these forces.

Findings

Positive feedback causes repulsive potential forces.

Negative feedback enhances attractive potential forces.

Dealer feedback is central to market potential dynamics.

Abstract

We apply the potential force estimation method to artificial time series of market price produced by a deterministic dealer model. We find that dealers' feedback of linear prediction of market price based on the latest mean price changes plays the central role in the market's potential force. When markets are dominated by dealers with positive feedback the resulting potential force is repulsive, while the effect of negative feedback enhances the attractive potential force.