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Self-organized percolation model for stock market fluctuations

Author

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  • Stauffer, Dietrich
  • Sornette, Didier

Abstract

In the Cont–Bouchaud model [cond-mat/9712318] of stock markets, percolation clusters act as buying or selling investors and their statistics controls that of the price variations. Rather than fixing the concentration controlling each cluster connectivity artificially at or close to the critical value, we propose that clusters shatter and aggregate continuously as the concentration evolves randomly, reflecting the incessant time evolution of groups of opinions and market moods. By the mechanism of “sweeping of an instability” [Sornette, J. Phys. I 4, 209(1994)], this market model spontaneously exhibits reasonable power-law statistics for the distribution of price changes and accounts for the other important stylized facts of stock market price fluctuations.

Suggested Citation

  • Stauffer, Dietrich & Sornette, Didier, 1999. "Self-organized percolation model for stock market fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 271(3), pages 496-506.
  • Handle: RePEc:eee:phsmap:v:271:y:1999:i:3:p:496-506
    DOI: 10.1016/S0378-4371(99)00290-3
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    References listed on IDEAS

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    1. Paul Brockman & David Michayluk, 1997. "The Holiday Anomaly: An Investigation of Firm Size versus Share Price Effects," Published Paper Series 1997-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Zhang, Yi-Cheng, 1999. "Toward a theory of marginally efficient markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 30-44.
    3. repec:uts:ppaper:y:1997:1 is not listed on IDEAS
    4. Yi-Cheng Zhang, 1999. "Toward a Theory of Marginally Efficient Markets," Papers cond-mat/9901243, arXiv.org.
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