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Multiplicative point process as a model of trading activity

Author

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  • Gontis, V.
  • Kaulakys, B.

Abstract

Signals consisting of a sequence of pulses show that inherent origin of the 1/f noise is a Brownian fluctuation of the average interevent time between subsequent pulses of the pulse sequence. In this paper, we generalize the model of interevent time to reproduce a variety of self-affine time series exhibiting power spectral density S(f) scaling as a power of the frequency f. Furthermore, we analyze the relation between the power-law correlations and the origin of the power-law probability distribution of the signal intensity. We introduce a stochastic multiplicative model for the time intervals between point events and analyze the statistical properties of the signal analytically and numerically. Such model system exhibits power-law spectral density S(f)∼1/fβ for various values of β, including β=12, 1 and 32. Explicit expressions for the power spectra in the low-frequency limit and for the distribution density of the interevent time are obtained. The counting statistics of the events is analyzed analytically and numerically, as well. The specific interest of our analysis is related with the financial markets, where long-range correlations of price fluctuations largely depend on the number of transactions. We analyze the spectral density and counting statistics of the number of transactions. The model reproduces spectral properties of the real markets and explains the mechanism of power-law distribution of trading activity. The study provides evidence that the statistical properties of the financial markets are enclosed in the statistics of the time interval between trades. A multiplicative point process serves as a consistent model generating this statistics.

Suggested Citation

  • Gontis, V. & Kaulakys, B., 2004. "Multiplicative point process as a model of trading activity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 343(C), pages 505-514.
    • Handle: RePEc:eee:phsmap:v:343:y:2004:i:c:p:505-514
    DOI: 10.1016/j.physa.2004.05.080
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    Citations

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    Cited by:

    1. Aleksejus Kononovicius & Vygintas Gontis, 2012. "Three-state herding model of the financial markets," Papers 1210.1838, arXiv.org, revised Jan 2013.
    2. Aleksejus Kononovicius & Vygintas Gontis & Valentas Daniunas, 2012. "Agent-based Versus Macroscopic Modeling of Competition and Business Processes in Economics and Finance," Papers 1202.3533, arXiv.org, revised Jun 2012.
    3. Kononovicius, Aleksejus & Kazakevičius, Rytis & Kaulakys, Bronislovas, 2022. "Resemblance of the power-law scaling behavior of a non-Markovian and nonlinear point processes," Chaos, Solitons & Fractals, Elsevier, vol. 162(C).
    4. Vygintas Gontis & Aleksejus Kononovicius & Stefan Reimann, 2012. "The class of nonlinear stochastic models as a background for the bursty behavior in financial markets," Papers 1201.3083, arXiv.org, revised May 2012.
    5. Vygintas Gontis, 2023. "Discrete $q$-exponential limit order cancellation time distribution," Papers 2306.00093, arXiv.org, revised Oct 2023.
    6. Aleksejus Kononovicius & Rytis Kazakeviv{c}ius & Bronislovas Kaulakys, 2022. "Resemblance of the power-law scaling behavior of a non-Markovian and nonlinear point processes," Papers 2205.07563, arXiv.org, revised Jul 2022.
    7. Ren, F. & Zheng, B. & Chen, P., 2010. "Modeling interactions of trading volumes in financial dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(14), pages 2744-2750.
    8. Rytis Kazakevicius & Aleksejus Kononovicius & Bronislovas Kaulakys & Vygintas Gontis, 2021. "Understanding the nature of the long-range memory phenomenon in socioeconomic systems," Papers 2108.02506, arXiv.org, revised Aug 2021.

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