EconPapers    
Economics at your fingertips  
 

Three different ways synchronization can cause contagion in financial markets

Naji Massad () and Jørgen Vitting Andersen ()
Additional contact information
Naji Massad: CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Jørgen Vitting Andersen: CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We introduce tools from statistical physics, to capture the dynamics of three different pathways, in which the synchronization of human decision making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to "change blindness", a trait in human decision making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance, and the use certain (decoupled) trading strategies. The third pathway can take place because of communication and its impact on human decision making. A model is introduced where financial market performance has an impact on decision making through communication between people. On the other hand the sentiment created via communication has an impact on the financial market performance.

Keywords: self-organized criticality; decoupling; complex system; human decision making; synchronization; agent-based modeling; opinion formation (search for similar items in EconPapers)
Date: 2017-12
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01673333
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published in 2017

Downloads: (external link)
https://halshs.archives-ouvertes.fr/halshs-01673333/document (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:hal:cesptp:halshs-01673333

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2020-01-15
Handle: RePEc:hal:cesptp:halshs-01673333