𝔖 Bobbio Scriptorium
✦   LIBER   ✦

Greed, fear and stock market dynamics

✍ Scribed by Frank H. Westerhoff

Book ID
104077689
Publisher
Elsevier Science
Year
2004
Tongue
English
Weight
354 KB
Volume
343
Category
Article
ISSN
0378-4371

No coin nor oath required. For personal study only.

✦ Synopsis

We present a behavioral stock market model in which traders are driven by greed and fear. In general, the agents optimistically believe in rising markets and thus buy stocks. But if stock prices change too abruptly, they panic and sell stocks. Our model mimics some stylized facts of stock market dynamics: (1) stock prices increase over time, (2) stock markets sometimes crash, (3) stock prices show little pair correlation between successive daily changes, and (4) periods of low volatility alternate with periods of high volatility. A strong feature of the model is that stock prices completely evolve according to a deterministic low-dimensional nonlinear law of motion.

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