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HERD BEHAVIOR AND AGGREGATE FLUCTUATIONS IN FINANCIAL MARKETS
Open accessAbstract
We present a simple model of a stock market where a random communication structure between agents generically gives rise to heavy tails in the distribution of stock price variations in the form of an exponentially truncated power law, similar to distributions observed in recent empirical studies of high-frequency market data. Our model provides a link between two well-known market phenomena: the heavy tails observed in the distribution of stock market returns on one hand and herding behavior in financial markets on the other hand. In particular, our study suggests a relation between the excess kurtosis observed in asset returns, the market order flow, and the tendency of market participants to imitate each other.
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Cited by
Chapter 23 Heterogeneous Agent Models in Economics and Finance
Hommes, C. H. (2006) · Handbook of Computational Economics · doi:10.1016/s1574-0021(05)02023-x · Cited by 542
Empirical investigation of starling flocks: a benchmark study in collective animal behaviour
Ballerini, M., Cabibbo, N., Candelier, R., Cavagna, A., Cisbani, E., Giardina, I., Orlandi, A., Parisi, G., Procaccini, A., Viale, M., et al. (2008) · Animal Behaviour · doi:10.1016/j.anbehav.2008.02.004 · Cited by 493
Chapter 24 Agent-based Computational Finance
LeBaron, B. (2006) · Handbook of Computational Economics · doi:10.1016/s1574-0021(05)02024-1 · Cited by 462
Multifractal analysis of financial markets: a review
Jiang, Z.-Q., Xie, W.-J., Zhou, W.-X., & Sornette, D. (2019) · Reports on Progress in Physics · doi:10.1088/1361-6633/ab42fb · Cited by 423
Approaching complexity by stochastic methods: From biological systems to turbulence
Friedrich, R., Peinke, J., Sahimi, M., & Reza Rahimi Tabar, M. (2011) · Physics Reports · doi:10.1016/j.physrep.2011.05.003 · Cited by 349
Metadata
- Authors
- Cont, R., & Bouchaud, J.-P.
- Venue
- Macroeconomic Dynamics
- Publisher
- Cambridge University Press (CUP)
- Published
- 2000-06
- Volume
- 4
- Issue
- 2
- Pages
- 170-196
- ISSN
- 1365-1005 (ISSN-L)
- 1469-8056
- OpenAlex
- W2949346072
- Cited by
- 651
- References
- 0
- FWCI
- 60.27
- Type
- journal article
- Language
- en
- Open access
- green
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- Cont, R., & Bouchaud, J.-P. (2000). HERD BEHAVIOR AND AGGREGATE FLUCTUATIONS IN FINANCIAL MARKETS. Macroeconomic Dynamics. https://doi.org/10.1017/s1365100500015029
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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