2018
DOI: 10.1080/14697688.2018.1540881
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A simple mechanism for financial bubbles: time-varying momentum horizon

Abstract: Building on the notion that bubbles are transient self-fulfilling prophecies created by positive feedback mechanisms, we construct the simplest continuous price process whose expected returns and volatility are functions of momentum only. The momentum itself is measured by a simple continuous moving average of past prices over a given time horizon. We introduce a simple dynamics of the time horizon used by the representative investor, which is motivated by the race of trend following agents to forerun their co… Show more

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Cited by 9 publications
(1 citation statement)
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“…A number of models of financial bubbles with stochastic finite-time singularities have been previously proposed [Sornette et al, 1996;Johansen et al, 1999Johansen et al, , 2000Sornette and Andersen, 2002;Ide and Sornette, 2002;Andersen and Sornette, 2004;Corsi and Sornette, 2014;Lin et al, 2014;Lin and Sornette, 2013;Lin et al, 2019;Schatz and Sornette, 2020]. The model closest to the present work in the exploding bubble regime is [Sornette and Andersen, 2002;Andersen and Sornette, 2004] in which the price is an inverse power of a drifting Brownian motion.…”
Section: Classification Of Two Different Regimesmentioning
confidence: 83%
“…A number of models of financial bubbles with stochastic finite-time singularities have been previously proposed [Sornette et al, 1996;Johansen et al, 1999Johansen et al, , 2000Sornette and Andersen, 2002;Ide and Sornette, 2002;Andersen and Sornette, 2004;Corsi and Sornette, 2014;Lin et al, 2014;Lin and Sornette, 2013;Lin et al, 2019;Schatz and Sornette, 2020]. The model closest to the present work in the exploding bubble regime is [Sornette and Andersen, 2002;Andersen and Sornette, 2004] in which the price is an inverse power of a drifting Brownian motion.…”
Section: Classification Of Two Different Regimesmentioning
confidence: 83%