Fluctuations and response in financial markets: the subtle nature of `random' price changes
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: strongly correlated market orders that lead to super-diffusion (or persistence), and mean reverting limit orders that lead to sub-diffusion (or anti-persistence). We define and study a model where the price, at any instant, is the result of the impact of all past trades, mediated by a non constant `propagator' in time that describes the response of the market to a single trade. Within this model, the market is shown to be, in a precise sense, at a critical point, where the price is purely diffusive and the average response function almost constant. We find empirically, and discuss theoretically, a fluctuation-response relation. We discuss the information content of each trade, and find that it is on average very small.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jul 2003|
|Publication status:||Published in Quantitative Finance 4 (April 2004) 176-190|
|Contact details of provider:|| Postal: 6 boulevard Haussmann, 75009 Paris, FRANCE|
Web page: http://www.science-finance.fr/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric Smith & J. Doyne Farmer & Laszlo Gillemot & Supriya Krishnamurthy, 2002.
"Statistical theory of the continuous double auction,"
- Eric Smith & J Doyne Farmer & Laszlo Gillemot & Supriya Krishnamurthy, 2003. "Statistical theory of the continuous double auction," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 481-514.
- Mark J. Powers, 2000. "Introduction," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(1), pages 3-4, 01.
- J-P. Bouchaud, 2001. "Power laws in economics and finance: some ideas from physics," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 105-112.
- D. Challet & A. Chessa & M. Marsili & Y. -C. Zhang, 2000.
"From Minority Games to real markets,"
- Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 251-256.
- Damien Challet & Robin Stinchcombe, 2001.
"Analyzing and modelling 1+1d markets,"
cond-mat/0106114, arXiv.org, revised Jun 2001.
- Challet, Damien & Stinchcombe, Robin, 2001. "Analyzing and modeling 1+1d markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 300(1), pages 285-299.
- Frantisek Slanina, 2001. "Mean-field approximation for a limit order driven market model," Papers cond-mat/0104547, arXiv.org, revised Aug 2001.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Potters, Marc & Bouchaud, Jean-Philippe, 2003. "More statistical properties of order books and price impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 133-140.
- Vasiliki Plerou & Parameswaran Gopikrishnan & Xavier Gabaix & H. Eugene Stanley, 2001. "Quantifying Stock Price Response to Demand Fluctuations," Papers cond-mat/0106657, arXiv.org.
- P. Bak & M. Paczuski & Martin Shubik, 1996.
"Price Variations in a Stock Market with Many Agents,"
Cowles Foundation Discussion Papers
1132, Cowles Foundation for Research in Economics, Yale University.
- Bak, P. & Paczuski, M. & Shubik, M., 1997. "Price variations in a stock market with many agents," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 430-453.
- P. Bak & M. Paczuski & M. Shubik, 1996. "Price Variations in a Stock Market with Many Agents," Working Papers 96-09-075, Santa Fe Institute.
- V. Plerou & P. Gopikrishnan & L. A. N. Amaral & M. Meyer & H. E. Stanley, 1999. "Scaling of the distribution of price fluctuations of individual companies," Papers cond-mat/9907161, arXiv.org.
- Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Science & Finance (CFM) working paper archive 0203511, Science & Finance, Capital Fund Management.
- Damien Challet & Robin Stinchcombe, 2003. "Non-constant rates and over-diffusive prices in a simple model of limit order markets," Quantitative Finance, Taylor & Francis Journals, vol. 3(3), pages 155-162.
- Jean-Philippe Bouchaud & Rama Cont, 1998. "A Langevin approach to stock market fluctuations and crashes," Science & Finance (CFM) working paper archive 500027, Science & Finance, Capital Fund Management.
- R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
- Lux, T. & M. Marchesi, "undated". "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
- Marc Potters & Jean-Philippe Bouchaud, 2002. "More statistical properties of order books and price impact," Science & Finance (CFM) working paper archive 0210710, Science & Finance, Capital Fund Management.
When requesting a correction, please mention this item's handle: RePEc:sfi:sfiwpa:0307332. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.