Greed, fear and stock market dynamics

Frank Westerhoff

Physica A: Statistical Mechanics and its Applications, 2004, vol. 343, issue C, 635-642

Abstract: We present a behavioral stock market model in which traders are driven by greed and fear. In general, the agents optimistically believe in rising markets and thus buy stocks. But if stock prices change too abruptly, they panic and sell stocks. Our model mimics some stylized facts of stock market dynamics: (1) stock prices increase over time, (2) stock markets sometimes crash, (3) stock prices show little pair correlation between successive daily changes, and (4) periods of low volatility alternate with periods of high volatility. A strong feature of the model is that stock prices completely evolve according to a deterministic low-dimensional nonlinear law of motion.

Keywords: Econophysics; Stock market dynamics; Greed and fear; Stylized facts; Chaos (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:343:y:2004:i:c:p:635-642

DOI: 10.1016/j.physa.2004.06.059

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