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Investors’ risk attitudes and stock price fluctuation asymmetry

Yu Zhang () and Honggang Li

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 9, 1655-1661

Abstract: Price rise/fall asymmetry, which indicates enduring but modest rises and sudden short-term falls, is a ubiquitous phenomenon in stock markets throughout the world. Instead of the widely used time series method, we adopt inverse statistics from turbulence to analyze this asymmetry. To explore its underlying mechanism, we build a multi-agent model with two kinds of investors, which are specifically referred to as fundamentalists and chartists. Inspired by Kahneman and Tversky’s claim regarding peoples’ asymmetric psychological responses to the equivalent levels of gains and losses, we assume that investors take different risk attitudes to gains and losses and adopt different trading strategies. The simulation results of the model developed herein are consistent with empirical work, which may support our conjecture that investors’ asymmetric risk attitudes might be one origin of rise/fall asymmetry.

Keywords: Price rise/fall asymmetry; Risk attitude; Chartist; Fundamentalist (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:9:p:1655-1661

DOI: 10.1016/j.physa.2011.01.002

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Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

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