Micro and Macro Benefits of Random Investments in Financial Markets

Alessio Emanuele Biondo, Alessandro Pluchino and Andrea Rapisarda

Papers from arXiv.org

Abstract: In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained about the effectiveness of random strategies of investment, compared with some of the most used trading strategies for forecasting the behavior of real financial indexes. We also push forward our analysis by means of a Self-Organized Criticality model, able to simulate financial avalanches in trading communities with different network topologies, where a Pareto-like power law behavior of wealth spontaneously emerges. In this context, we present new findings and suggestions for policies based on the effects that random strategies can have in terms of reduction of dangerous financial extreme events, i.e. bubbles and crashes.

Date: 2014-05
New Economics Papers: this item is included in nep-fmk
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Published in Contemporary Physics, Volume 55, Issue 4, Pages 318-334 (2014)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1405.5805

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