Opinion dynamics in financial markets via random networks
Abstract
We investigate financial market dynamics by introducing a heterogeneous agent-based opinion formation model. In this work, we organize individuals in a financial market according to their trading strategy, namely, whether they are noise traders or fundamentalists. The opinion of a local majority compels the market exchanging behavior of noise traders, whereas the global behavior of the market influences the decisions of fundamentalist agents. We introduce a noise parameter, q , to represent the level of anxiety and perceived uncertainty regarding market behavior, enabling the possibility of adrift financial action. We place individuals as nodes in an Erdös-Rényi random graph, where the links represent their social interactions. At any given time, individuals assume one of two possible opinion states ±1 regarding buying or selling an asset. The model exhibits fundamental qualitative and quantitative real-world market features such as the distribution of logarithmic returns with fat tails, clustered volatility, and the long-term correlation of returns. We use Student’s t distributions to fit the histograms of logarithmic returns, showing a gradual shift from a leptokurtic to a mesokurtic regime depending on the fraction of fundamentalist agents. Furthermore, we compare our results with those concerning the distribution of the logarithmic returns of several real-world financial indices.
Document Details
- Document Type
- Pub Defense Publication
- Publication Date
- Nov 29, 2022
- Source ID
- 10.1073/pnas.2201573119
Entities
People
- André L M Vilela
- Chao Wang
- H. Eugene Stanley
- Kenric P. Nelson
- Mateus F. B. Granha
Organizations
- Beijing University of Technology
- Boston University
- Defense Threat Reduction Agency
- Escola Politécnica de Pernambuco
- Fundação de Amparo à Ciência e Tecnologia de Pernambuco
- National Natural Science Foundation of China
- National Science Foundation