Non-Linear and Meta-Stable Dynamics in Financial Markets: Evidence from High Frequency Crypto Currency Market Makers

Igor Halperin

Papers from arXiv.org

Abstract: This work builds upon the long-standing conjecture that linear diffusion models are inadequate for complex market dynamics. Specifically, it provides experimental validation for the author's prior arguments that realistic market dynamics are governed by higher-order (cubic and higher) non-linearities in the drift. As the diffusion drift is given by the negative gradient of a potential function, this means that a non-linear drift translates into a non-quadratic potential. These arguments were based both on general theoretical grounds as well as a structured approach to modeling the price dynamics which incorporates money flows and their impact on market prices. Here, we find direct confirmation of this view by analyzing high-frequency crypto currency data at different time scales ranging from minutes to months. We find that markets can be characterized by either a single-well or a double-well potential, depending on the time period and sampling frequency, where a double-well potential may signal market uncertainty or stress.

Date: 2025-09
New Economics Papers: this item is included in nep-hme and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2509.02941

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