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Convergence of fundamentalists and chartists’ expectations: An alarm for stock market crash

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  • Bolgorian, Meysam
  • Raei, Reza
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    Abstract

    We construct a network of the Tehran stock market based on the cross-correlation of trading volume of stocks both for fundamentalists and chartists. In order to investigate the dynamics of expectations of fundamentalists and chartists over time we introduced a homogeneity coefficient. Our results show that in the Tehran Stock Exchange (TSE) which is an emerging market, chartists in comparison with fundamentalists more strongly believe the stocks’ co-movements. We also found that in a bull market (booming period), the optimism of fundamentalists and chartists about the similarity of stocks’ performance diverge from each other while in a bear market (recession period) both groups of traders have approximately same level of pessimism about the simultaneous collapse of stock prices.

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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 389 (2010)
    Issue (Month): 18 ()
    Pages: 3822-3827

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    Handle: RePEc:eee:phsmap:v:389:y:2010:i:18:p:3822-3827

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    Keywords: Complex networks; Trading volume; Fundamentalists; Chartists;

    References

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    1. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 11(1), pages 193-197, September.
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    14. Matteo Marsili, 2002. "Dissecting financial markets: Sectors and states," Papers cond-mat/0207156, arXiv.org.
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