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A consensus-based dynamics for market volumes

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  • Sabatelli, Lorenzo
  • Richmond, Peter

Abstract

We develop a model of trading orders based on opinion dynamics. The agents may be thought as the share holders of a major mutual fund rather than as direct traders. The balance between their buy and sell orders determines the size of the fund order (volume) and has an impact on prices and indexes. We assume agents interact simultaneously to each other through a Sznajd-like interaction. Their degree of connection is determined by the probability of changing opinion independently of what their neighbours are doing. We assume that such a probability may change randomly, after each transaction, of an amount proportional to the relative difference between the volatility then measured and a benchmark that we assume to be an exponential moving average of the past volume values. We show how this simple model is compatible with some of the main statistical features observed for the asset volumes in financial markets.

Suggested Citation

  • Sabatelli, Lorenzo & Richmond, Peter, 2004. "A consensus-based dynamics for market volumes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 62-66.
    • Handle: RePEc:eee:phsmap:v:344:y:2004:i:1:p:62-66
    DOI: 10.1016/j.physa.2004.06.088
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    References listed on IDEAS

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    1. Lorenzo Sabatelli & Peter Richmond, 2003. "Phase Transitions, Memory And Frustration In A Sznajd-Like Model With Synchronous Updating," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 14(09), pages 1223-1229.
    2. Parameswaran Gopikrishnan & Vasiliki Plerou & Xavier Gabaix & H. Eugene Stanley, 2000. "Statistical Properties of Share Volume Traded in Financial Markets," Papers cond-mat/0008113, arXiv.org.
    3. Katarzyna Sznajd-Weron & Józef Sznajd, 2000. "Opinion Evolution In Closed Community," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 11(06), pages 1157-1165.
    4. Sabatelli, Lorenzo & Richmond, Peter, 2004. "Non-monotonic spontaneous magnetization in a Sznajd-like consensus model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 334(1), pages 274-280.
    5. Fabrizio Lillo & J. Doyne Farmer & Rosario N. Mantegna, 2003. "Master curve for price-impact function," Nature, Nature, vol. 421(6919), pages 129-130, January.
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    Cited by:

    1. Quanbo Zha & Gang Kou & Hengjie Zhang & Haiming Liang & Xia Chen & Cong-Cong Li & Yucheng Dong, 2020. "Opinion dynamics in finance and business: a literature review and research opportunities," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-22, December.

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