Financial Symmetry and Moods in the Market

Roberto Savona, Maxence Soumare and Jørgen Vitting Andersen ()
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Maxence Soumare: LJAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur
Jørgen Vitting Andersen: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper studies how certain speculative transitions in financial markets can be ascribed to a symmetry break that happens in the collective decision making. Investors are assumed to be bounded rational, using a limited set of information including past price history and expectation on future dividends. Investment strategies are dynamically changed based on realized returns within a game theoretical scheme with Nash equilibria. In such a setting, markets behave as complex systems whose payoff reflect an intrinsic financial symmetry that guarantees equilibrium in price dynamics (fundamentalist state) until the symmetry is broken leading to bubble or anti-bubble scenarios (speculative state). We model such two-phase transition in a micro-to-macro scheme through a Ginzburg-Landau-based power expansion leading to a market temperature parameter which modulates the state transitions in the market. Via simulations we prove that transitions in the market price dynamics can be phenomenologically explained by the number of traders, the number of strategies and amount of information used by agents, all included in our market temperature parameter.

Keywords: agent-based modelling; game theory; Ginzburg-landau theory; financial symmetry (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (11)

Published in PLoS ONE, 2015, April, pp.1-21. ⟨10.1371/journal.pone.0118224⟩

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Related works:
Journal Article: Financial Symmetry and Moods in the Market (2015)
Working Paper: Financial Symmetry and Moods in the Market (2015)
Working Paper: Financial Symmetry and Moods in the Market (2014)
Working Paper: Financial Symmetry and Moods in the Market (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01215755

DOI: 10.1371/journal.pone.0118224

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