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Financial Symmetry and Moods in the Market

Author

Listed:
  • Roberto Savona

    (University of Brescia - Department of Economics and Management)

  • Maxence Soumare

    (Université de Nice-Sophia Antipolis - Laboratoire J-A.Dieudonné)

  • Jørgen Vitting Andersen

    () (Centre d'Economie de la Sorbonne)

Abstract

This paper introduces a theoretical framework for collective decision making to describe fluctuations and transitions in financial markets. Investors are assumed to be boundedly rational, using a limited set of information including past price history and expectation on future dividends. Investment strategies are dynamically changed based on realized returns within a game theoretical scheme with Nash equilibria. In such a setting, markets behave as complex systems whose payoff reflect an intrinsic financial symmetry that guarantees equilibrium in price dynamics (fundamentalist state) until the symmetry is broken leading to bubble or anti-bubble scenarios (speculative state). We model such two-phase transition in a micro-to-macro scheme through a Ginzburg-Landau-based power expansion leading to a market temperature parameter which modulates the state transitions in the market. Via simulation we prove that complex market dynamics can be phenomenologically explained by the number of traders, the strategies used by agents and the past price history, all included in our market temperature parameter

Suggested Citation

  • Roberto Savona & Maxence Soumare & Jørgen Vitting Andersen, 2014. "Financial Symmetry and Moods in the Market," Documents de travail du Centre d'Economie de la Sorbonne 14030, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:14030
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    References listed on IDEAS

    as
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    2. Magda Roszczynska-Kurasinska & Andrzej Nowak & Daniel Kamieniarz & Sorin Solomon & Jørgen Vitting Andersen, 2012. "Short and Long Term Investor Synchronization Caused by Decoupling," Post-Print hal-00853991, HAL.
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    Cited by:

    1. C. M. Rodr'iguez-Mart'inez & H. F. Coronel-Brizio & A. R. Hern'andez-Montoya, 2019. "A multi-scale symmetry analysis of uninterrupted trends returns of daily financial indices," Papers 1908.11204, arXiv.org.
    2. Chen, Ting-Ting & Zheng, Bo & Li, Yan & Jiang, Xiong-Fei, 2018. "Information driving force and its application in agent-based modeling," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 496(C), pages 593-601.

    More about this item

    Keywords

    Agent-based modelling; game theory; Ginzburg-Landau theory; financial symmetry;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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