Interacting Many-Investor Models, Opinion Formation and Price Formation with Non-extensive Statistics

TL;DR

This paper develops models of interacting investors using nonextensive statistics to explain market price changes, capturing the heavy-tailed distributions observed in real financial data.

Contribution

It introduces a novel microscopic modeling approach for investor interactions based on nonextensive statistics, linking microscopic behavior to macroscopic price distributions.

Findings

Price change distributions fit Student's-T and power-law forms

Models successfully describe excess demand and price formation

Provides a statistical foundation for market dynamics analysis

Abstract

We seek to utilize the nonextensive statistics to the microscopic modeling of the interacting many-investor dynamics that drive the price changes in a market. The statistics of price changes are known to be fit well by the Students-T and power-law distributions of the nonextensive statistics. We therefore derive models of interacting investors that are based on the nonextensive statistics and which describe the excess demand and formation of price.