Amplified imitation in percolation model of stock market

TL;DR

This paper introduces an amplified imitation mechanism in a percolation model of stock markets, showing it may explain herd behavior and sell decisions in emerging markets by comparing model results with Warsaw Stock Exchange data.

Contribution

It proposes a novel amplification mechanism in a percolation model to better understand herd behavior in stock markets, especially emerging ones.

Findings

Amplified imitation can reproduce herd behavior observed in real markets.

The model aligns with sell decision patterns in the Warsaw Stock Exchange.

Amplification mechanism may be responsible for market crashes in emergent markets.

Abstract

The herd behavior of the Cont Bouchaud model is amplified by allowing clusters to copy decisions of some other cluster in the next time step. The results of the model are compared to data from Warsaw Stock Exchange. It follows that the mechanism of the amplified imitation could be responsible for the sell decision on a poorly developed, emergent market.