Transmission of Information and Herd Behavior: An Application to Financial Markets
We propose a model for stochastic formation of opinion clusters, modeled by an evolving network, and herd behavior to account for the observed fat-tail distribution in returns of financial-price data. The only parameter of the model is h, the rate of information dispersion per trade, which is a meas...
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| Formato: | Capítulo de libro |
| Lenguaje: | Inglés |
| Publicado: |
2000
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| Acceso en línea: | Registro en Scopus DOI Handle Registro en la Biblioteca Digital |
| Aporte de: | Registro referencial: Solicitar el recurso aquí |
| Sumario: | We propose a model for stochastic formation of opinion clusters, modeled by an evolving network, and herd behavior to account for the observed fat-tail distribution in returns of financial-price data. The only parameter of the model is h, the rate of information dispersion per trade, which is a measure of herding behavior. For h below a critical h* the system displays a power-law distribution of the returns with exponential cutoff. However, for h>h* an increase in the probability of large returns is found and may be associated with the occurrence of large crashes. © 2000 The American Physical Society. |
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| ISSN: | 00319007 |
| DOI: | 10.1103/PhysRevLett.85.5659 |