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Why have asset price properties changed so little in 200 years

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  • Jean-Philippe Bouchaud

    (X - École polytechnique)

  • Damien Challet

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

Abstract

We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be attributed to two fundamental mechanisms that have not changed for many centuries: an innate preference for trend following and the collective tendency to exploit as much as possible detectable price arbitrage, which leads to destabilizing feedback loops.

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  • Jean-Philippe Bouchaud & Damien Challet, 2017. "Why have asset price properties changed so little in 200 years," Post-Print hal-01311113, HAL.
    • Handle: RePEc:hal:journl:hal-01311113
    DOI: 10.1007/978-3-319-47705-3
    Note: View the original document on HAL open archive server: https://centralesupelec.hal.science/hal-01311113
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    1. repec:wsi:acsxxx:v:21:y:2018:i:08:n:s0219525918500194 is not listed on IDEAS
    2. Marco Bardoscia & Daniele d'Arienzo & Matteo Marsili & Valerio Volpati, 2019. "Lost in Diversification," Papers 1901.09795, arXiv.org.
    3. L. Lin & M. Schatz & D. Sornette, 2019. "A simple mechanism for financial bubbles: time-varying momentum horizon," Quantitative Finance, Taylor & Francis Journals, vol. 19(6), pages 937-959, June.
    4. Damien Challet & R'emy Chicheportiche & Mehdi Lallouache & Serge Kassibrakis, 2016. "Statistically validated lead-lag networks and inventory prediction in the foreign exchange market," Papers 1609.04640, arXiv.org, revised Jul 2018.
    5. Sabiou M. Inoua, 2020. "News-Driven Expectations and Volatility Clustering," JRFM, MDPI, vol. 13(1), pages 1-14, January.
    6. Li Lin & Didier Sornette, 2016. "A Simple Mechanism for Financial Bubbles: Time-Varying Momentum Horizon," Swiss Finance Institute Research Paper Series 16-61, Swiss Finance Institute.
    7. Sabiou Inoua, 2016. "Speculation and Power Law," Papers 1612.08705, arXiv.org.
    8. Sabiou Inoua, 2023. "News-driven Expectations and Volatility Clustering," Papers 2309.04876, arXiv.org.

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