Econophysics of Asset Price, Return and Multiple Expectations

TL;DR

This paper models asset price and return fluctuations as resulting from the interplay of multiple expectation types, linking trade volume disturbances to market volatility and distributional properties.

Contribution

It introduces a framework where asset price and return disturbances are modeled as weighted sums of separate expectation-based components, connecting expectations to market fluctuations.

Findings

Price disturbances depend on expectation-driven trade volume disturbances.

Return fluctuations are linked to trade volume 'returns' under different expectations.

Market volatility and distributional characteristics are influenced by the statistical properties of trade volume disturbances.

Abstract

This paper describes asset price and return disturbances as result of relations between transactions and multiple kinds of expectations. We show that disturbances of expectations can cause fluctuations of trade volume, price and return. We model price disturbances for transactions made under all types of expectations as weighted sum of partial price and trade volume disturbances for transactions made under separate kinds of expectations. Relations on price allow present return as weighted sum of partial return and trade volume "return" for transactions made under separate expectations. Dependence of price disturbances on trade volume disturbances as well as dependence of return on trade volume "return" cause dependence of volatility and statistical distributions of price and return on statistical properties of trade volume disturbances and trade volume "return" respectively.