Feedback Trading and Intermittent Market Turbulence

Demosthenes Tambakis ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper studies the potential for complex asset return dynamics in a high-frequency, non-fundamental feedback trading model. Price adjustment is driven by the time-varying price impact of net orderflow. In tranquil times feedback trading has no impact on the price level. Given feedback trading intensities, as asset liquidity declines the market progressively becomes stressed and turbulent. Returns and absolute returns persistence are found to display power-law features, and episodes of turbulence are intermittent.

Keywords: Feedback trading; Price impact; Financial stability; Intermittence; Power law. (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-mst
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https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0847.pdf Working Paper Version (application/pdf)

Related works:
Journal Article: Feedback trading and intermittent market turbulence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0847

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