Conditional dynamics driving financial markets

TL;DR

This paper provides empirical evidence of a universal conditional dynamic in financial markets, where the evolution depends on whether the previous price increased or decreased, across various markets and historical periods.

Contribution

It identifies a new stylized fact of market behavior, demonstrating a double dynamics based on prior price movements across multiple markets and timeframes.

Findings

Double dynamics depend on previous price direction

Universal effect observed across markets and periods

Potential new stylized fact of financial markets

Abstract

We report empirical evidences on the existence of a conditional dynamics driving the evolution of financial assets which is found in several markets around the world and for different historical periods. In particular, we have analyzed the DJIA database from 1900 to 2002 as well as more than 50 companies trading in the LIFFE market of futures and 12 of the major European and American treasury bonds. In all of the above cases, we find a double dynamics driving the financial evolution depending on whether the previous price went up or down. We conjecture that this effect is universal and intrinsic to all markets and, thus, it could be included as a new stylized fact of the market.