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Exact Solution Of A Model For Crowding And Information Transmission In Financial Markets

Author

Listed:
  • R. D'HULST

    (Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex, UB8 3PH, UK)

  • G. J. RODGERS

    (Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex, UB8 3PH, UK)

Abstract

An exact solution is presented to a model that mimics the crowding effect in financial markets which arises when groups of agents share information. We show that the size distribution of groups of agents has a power law tail with an exponential cut-off. As the size of these groups determines the supply and demand balance, this implies heavy tails in the distribution of price variation. The moments of the distribution are calculated, as well as the kurtosis. We find that the kurtosis is large for all model parameter values and that the model is not self-organizing.

Suggested Citation

  • R. D'Hulst & G. J. Rodgers, 2000. "Exact Solution Of A Model For Crowding And Information Transmission In Financial Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 609-616.
    • Handle: RePEc:wsi:ijtafx:v:03:y:2000:i:04:n:s0219024900000784
    DOI: 10.1142/S0219024900000784
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    Citations

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    Cited by:

    1. Peng Yue & Qing Cai & Wanfeng Yan & Wei-Xing Zhou, 2020. "Information flow networks of Chinese stock market sectors," Papers 2004.08759, arXiv.org.
    2. Gu, Gao-Feng & Chen, Wei & Zhou, Wei-Xing, 2008. "Empirical regularities of order placement in the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(13), pages 3173-3182.
    3. Colman, E.R. & Rodgers, G.J., 2012. "Kinetics of node splitting in evolving complex networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(24), pages 6626-6631.
    4. Dávid Csercsik & Sándor Imre, 2017. "Cooperation and coalitional stability in decentralized wireless networks," Telecommunication Systems: Modelling, Analysis, Design and Management, Springer, vol. 64(4), pages 571-584, April.

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