Traders' strategy with price feedbacks in financial market
Takayuki Mizuno, Tohur Nakano, Misako Takayasu, Hideki Takayasu
TL;DR
This paper presents an autoregressive model of financial prices incorporating trader feedback strategies, explaining phenomena like slow diffusion, apparent trends, and power-law distributions of price changes.
Contribution
It introduces a self-modulating autoregressive model capturing trader feedback effects, a novel approach to understanding market dynamics.
Findings
Feedback strategies cause slow diffusion in short times
Feedback effects lead to apparent trends in prices
Power law distribution of price changes observed
Abstract
We introduce an autoregressive-type model of prices in financial market taking into account the self-modulation effect. We find that traders are mainly using strategies with weighted feedbacks of past prices. These feedbacks are responsible for the slow diffusion in short times, apparent trends and power law distribution of price changes.
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Taxonomy
TopicsComplex Systems and Time Series Analysis · Financial Markets and Investment Strategies · Stochastic processes and financial applications