A price dynamic equilibrium model with trading volume weights based on a price-volume probability wave differential equation

Leilei Shi, Binghong Wang, Xinshuai Guo and Honggang Li

International Review of Financial Analysis, 2021, vol. 74, issue C

Abstract: Guided by a price-volume probability wave differential equation in a new mathematical method, we study intraday market dynamic equilibrium in stock market. We select intraday cumulative trading volume distribution over a price range as individual mental representation and determine a price equilibrium point by the maximum volume utility price. We propose the hypothesis that a stock price can deviate away from the equilibrium point in momentum and restore to it in reversal, and the volume distribution embodies market dynamic equilibrium. Then, we examine it by a set of explicit price dynamic equilibrium models with trading volume weights from the differential equation against a large number of the price-volume distribution using tick-by-tick high frequency data in Chinese stock market in 2019. It holds true. We can infer that the theory is applied for a broader scope because it embraces core mathematical components in expected utility theory, prospect theory, and reflexivity theory.

Keywords: Behavioral finance theory; Mathematical method; Market dynamic equilibrium; Volume distribution over price; Momentum and reversal (search for similar items in EconPapers)
JEL-codes: B41 C61 D53 G40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:74:y:2021:i:c:s1057521920302465

DOI: 10.1016/j.irfa.2020.101603

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