Financial Symmetry and Moods in the Market

Roberto Savona, Maxence Soumare and Jørgen Vitting Andersen ()
Additional contact information
Maxence Soumare: Université de Nice-Sophia Antipolis - Laboratoire J-A.Dieudonné
Jørgen Vitting Andersen: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This paper introduces a theoretical framework for collective decision making to describe fluctuations and transitions in financial markets. Investors are assumed to be boundedly rational, using a limited set of information including past price history and expectation on future dividends. Investment strategies are dynamically changed based on realized returns within a game theoretical scheme with Nash equilibria. In such a setting, markets behave as complex systems whose payoff reflect an intrinsic financial symmetry that guarantees equilibrium in price dynamics (fundamentalist state) until the symmetry is broken leading to bubble or anti-bubble scenarios (speculative state). We model such two-phase transition in a micro-to-macro scheme through a Ginzburg-Landau-based power expansion leading to a market temperature parameter which modulates the state transitions in the market. Via simulation we prove that complex market dynamics can be phenomenologically explained by the number of traders, the strategies used by agents and the past price history, all included in our market temperature parameter

Keywords: Agent-based modelling; game theory; Ginzburg-Landau theory; financial symmetry (search for similar items in EconPapers)
JEL-codes: C73 G14 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-03
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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ftp://mse.univ-paris1.fr/pub/mse/CES2014/14030.pdf (application/pdf)

Related works:
Journal Article: Financial Symmetry and Moods in the Market (2015)
Working Paper: Financial Symmetry and Moods in the Market (2015)
Working Paper: Financial Symmetry and Moods in the Market (2015)
Working Paper: Financial Symmetry and Moods in the Market (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:14030

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