Self-fulfilling Ising Model of Financial Markets

Wei-Xing Zhou and Didier Sornette
Additional contact information
Didier Sornette: CNRS-Univ. Nice and UCLA

Papers from arXiv.org

Abstract: We study a dynamical Ising model of agents' opinions (buy or sell) with coupling coefficients reassessed continuously in time according to how past external news (magnetic field) have explained realized market returns. By combining herding, the impact of external news and private information, we test within the same model the hypothesis that agents are rational versus irrational. We find that the stylized facts of financial markets are reproduced only when agents are over-confident and mis-attribute the success of news to predict return to herding effects, thereby providing positive feedbacks leading to the model functioning close to the critical point.

Date: 2005-03
References: Add references at CitEc
Citations:

Published in European Physical Journal B 55(2), 175-181 (2007)

Downloads: (external link)
http://arxiv.org/pdf/physics/0503230 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:physics/0503230

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().