Financial Symmetry and Moods in the Market

Roberto Savona (), Maxence Soumare () and Jørgen Vitting Andersen ()
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Roberto Savona: Department of Economics and Management - UniBs - Università degli Studi di Brescia = University of Brescia
Maxence Soumare: LJAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur
Jørgen Vitting Andersen: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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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.

Keywords: Agent-based modelling; Game theory; Ginzburg-Landau theory; financial symmetry; Modélisation multi-agents; théorie des jeux; théorie de Ginzburg-Landau; symétrie financière (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cmp
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00983008v1
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Published in 2014

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00983008

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