Trading strategies, feedback control and market dynamics

Jose Alvarez-Ramirez, Rodolfo Suarez and Carlos Ibarra-Valdez

Physica A: Statistical Mechanics and its Applications, 2003, vol. 324, issue 1, 220-226

Abstract: Markets have internal dynamics leading to stilized facts, such as fat-tails in price fluctuations and long-run memory. In this paper, we use a nonequilibrium price formation rule to explore feedback effects in trading strategies and market dynamics. By interpreting trading strategies as a feedback controller, we show that (a) trend followers can lead to oscillatory phenomena, and (b) adaptation mechanisms are necessary in order prices track values.

Keywords: Feedback; Trading strategies; Value tracking; Memory (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:324:y:2003:i:1:p:220-226

DOI: 10.1016/S0378-4371(02)01857-5

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