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Predictable markets? A news-driven model of the stock market

Author

Listed:
  • Gusev, Maxim

    (IBC Quantitative Strategies)

  • Kroujiline, Dimitri

    (LGT Capital Partners)

  • Govorkov, Boris

    (IBC Quantitative Strategies)

  • Sharov, Sergey V.

    (N.I. Lobachevsky State University)

  • Ushanov, Dmitry

    (Department of Mechanics and Mathematics)

  • Zhilyaev, Maxim

    (Mozilla Corporation)

Abstract

We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market dynamics which we study both empirically and theoretically. We demonstrate that this model replicates observed market behavior on all relevant timescales (from days to years) reasonably well. Using the model, we obtain and discuss a number of results that pose implications for current market theory and offer potential practical applications.

Suggested Citation

  • Gusev, Maxim & Kroujiline, Dimitri & Govorkov, Boris & Sharov, Sergey V. & Ushanov, Dmitry & Zhilyaev, Maxim, 2015. "Predictable markets? A news-driven model of the stock market," Algorithmic Finance, IOS Press, vol. 4(1-2), pages 5-51.
    • Handle: RePEc:ris:iosalg:0035
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    Citations

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    Cited by:

    1. Karl Naumann-Woleske & Michael Benzaquen & Maxim Gusev & Dimitri Kroujiline, 2021. "Capital Demand Driven Business Cycles: Mechanism and Effects," Papers 2110.00360, arXiv.org, revised Sep 2022.
    2. Rameeza Andleeb & Arshad Hassan, 2023. "Impact of Investor Sentiment on Contemporaneous and Future Equity Returns in Emerging Markets," SAGE Open, , vol. 13(3), pages 21582440231, August.
    3. Kroujiline, Dimitri & Gusev, Maxim & Ushanov, Dmitry & Sharov, Sergey V. & Govorkov, Boris, 2015. "Forecasting stock market returns over multiple time horizons," MPRA Paper 66175, University Library of Munich, Germany.
    4. Majewski, Adam A. & Ciliberti, Stefano & Bouchaud, Jean-Philippe, 2020. "Co-existence of trend and value in financial markets: Estimating an extended Chiarella model," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    5. Dimitri Kroujiline & Maxim Gusev & Dmitry Ushanov & Sergey V. Sharov & Boris Govorkov, 2018. "An Endogenous Mechanism of Business Cycles," Papers 1803.05002, arXiv.org, revised Sep 2019.

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