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The econophysics of asset prices, returns and multiple expectations

Author

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  • Victor Olkhov

Abstract

We model interactions between financial transactions and expectations and describe asset pricing and return disturbances. We use the risk ratings of economic agents as their coordinates, and we approximate the financial variables, transactions and expectations of numerous separate agents by descriptions of collective variables, transactions and expectations as density functions in the economic space. We take into account flows of collective financial variables, transactions and expectations induced by the motion of separate agents in the economic space due to the change of agents' risk ratings and describe the impact of these flows. We derive self-consistent equations on transactions and multiple kinds of expectations and propose that asset pricing fluctuations may be induced by different expectations for approved transactions with particular assets. We study a model with a linear dependence between the disturbances of transactions and expectations and derive expressions that describe the explicit dependence between price and volume disturbances and the dependence between return and volume disturbances. Our results may help in further studies of price–volume and return–volume correlations.

Suggested Citation

  • Victor Olkhov, . "The econophysics of asset prices, returns and multiple expectations," Journal of Network Theory in Finance, Journal of Network Theory in Finance.
    • Handle: RePEc:rsk:journ8:7658991
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    Cited by:

    1. is not listed on IDEAS
    2. Olkhov, Victor, 2019. "New Essentials of Economic Theory," MPRA Paper 95065, University Library of Munich, Germany.
    3. Olkhov, Victor, 2019. "New Essentials of Economic Theory I. Assumptions, Economic Space and Variables," MPRA Paper 93085, University Library of Munich, Germany.
    4. Olkhov, Victor, 2019. "New essentials of economic theory II. Economic transactions, expectations and asset pricing," MPRA Paper 93428, University Library of Munich, Germany.
    5. Olkhov, Victor, 2019. "New Essentials of Economic Theory III. Economic Applications," MPRA Paper 94053, University Library of Munich, Germany.
    6. Victor Olkhov, 2020. "Business Cycles as Collective Risk Fluctuations," Papers 2012.04506, arXiv.org.

    More about this item

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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