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Expectation Bubbles In A Spin Model Of Markets: Intermittency From Frustration Across Scales

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  • STEFAN BORNHOLDT

    (Institut für Theoretische Physik, Universität Kiel, Leibnizstrasse 15, D-24098 Kiel, Germany)

Abstract

A simple spin model is studied, motivated by the dynamics of traders in a market, where expectation bubbles and crashes occur. The dynamics is governed by interactions, which are frustrated across different scales: while ferromagnetic couplings connect each spin to its local neighborhood, an additional coupling relates each spin to the global magnetization. This new coupling is allowed to be anti-ferromagnetic. The resulting frustration causes a metastable dynamics with intermittency and phases of chaotic dynamics. The model reproduces main observations of real economic markets as power-law distributed returns and clustered volatility.

Suggested Citation

  • Stefan Bornholdt, 2001. "Expectation Bubbles In A Spin Model Of Markets: Intermittency From Frustration Across Scales," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 12(05), pages 667-674.
    • Handle: RePEc:wsi:ijmpcx:v:12:y:2001:i:05:n:s0129183101001845
    DOI: 10.1142/S0129183101001845
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