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A price dynamic equilibrium model with trading volume weights based on a price-volume probability wave differential equation

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  • Shi, Leilei
  • Wang, Binghong
  • Guo, Xinshuai
  • Li, Honggang

Abstract

Guided by a price-volume probability wave differential equation in a new mathematical method, we study intraday market dynamic equilibrium in stock market. We select intraday cumulative trading volume distribution over a price range as individual mental representation and determine a price equilibrium point by the maximum volume utility price. We propose the hypothesis that a stock price can deviate away from the equilibrium point in momentum and restore to it in reversal, and the volume distribution embodies market dynamic equilibrium. Then, we examine it by a set of explicit price dynamic equilibrium models with trading volume weights from the differential equation against a large number of the price-volume distribution using tick-by-tick high frequency data in Chinese stock market in 2019. It holds true. We can infer that the theory is applied for a broader scope because it embraces core mathematical components in expected utility theory, prospect theory, and reflexivity theory.

Suggested Citation

  • Shi, Leilei & Wang, Binghong & Guo, Xinshuai & Li, Honggang, 2021. "A price dynamic equilibrium model with trading volume weights based on a price-volume probability wave differential equation," International Review of Financial Analysis, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521920302465
    DOI: 10.1016/j.irfa.2020.101603
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    More about this item

    Keywords

    Behavioral finance theory; Mathematical method; Market dynamic equilibrium; Volume distribution over price; Momentum and reversal;
    All these keywords.

    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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