MARKET DEPTH AND PRICE DYNAMICS: A NOTE

Frank Westerhoff

International Journal of Modern Physics C (IJMPC), 2004, vol. 15, issue 07, 1005-1012

Abstract: This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist–fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical studies, a given transaction may cause a large (small) price change if market depth is low (high). Simulations reveal that such a relationship may create endogenous complex price fluctuations even if the trading behavior of chartists and fundamentalists is linear.

Keywords: Econophysics; market depth; price dynamics; nonlinearities; technical and fundamental analysis (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (4)

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Working Paper: Market depth and price dynamics: A note (2004)
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DOI: 10.1142/S0129183104006455

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