Dynamics of price and trading volume in a spin model of stock markets with heterogeneous agents

TL;DR

This paper explores a spin model of stock markets with diverse agents, linking market dynamics to magnetization and trading volume, revealing scaling behaviors in returns and transition times.

Contribution

It introduces a spin model framework that captures the emergence of bubbles and crashes with scaling properties matching real market observations.

Findings

Log returns relate to magnetization and trading volume.

Distribution of returns shows steep power-law scaling.

Transition times between market regimes also exhibit scaling.

Abstract

The dynamics of a stock market with heterogeneous agents is discussed in the framework of a recently proposed spin model for the emergence of bubbles and crashes. We relate the log returns of stock prices to magnetization in the model and find that it is closely related to trading volume as observed in real markets. The cumulative distribution of log returns exhibits scaling with exponents steeper than 2 and scaling is observed in the distribution of transition times between bull and bear markets.