Market depth and price dynamics: A note

Frank Westerhoff

Papers from arXiv.org

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.

Date: 2004-03
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Journal Article: MARKET DEPTH AND PRICE DYNAMICS: A NOTE (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:cond-mat/0403723

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