Super-exponential endogenous bubbles in an equilibrium model of fundamentalist and chartist traders

Kaizoji, Taisei; Leiss, Matthias; Саичев, А. И.; Sornette, Didier

doi:10.1016/j.jebo.2015.02.001

Cited by 41 publications

(57 citation statements)

References 98 publications

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“…For example, ifφ1(·),φ2(·) are linear functions, the resulting model corresponds to the asset demand in the rational noise trader environment (e.g., Hellwig 1980;Kyle 1985Kyle , 1989. Other examples that include the idea of heterogeneous trader types are De Long et al (1990), Boswijk, Hommes, and Manzan (2007), and Kaizoji et al (2015).…”

Section: Mental Models Capabilities and Distortionsmentioning

confidence: 99%

Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe propose that heterogeneous asset trading behavior is the result of two distinct, non-convertible mental dimensions: analytical ("quantitative") capability and mentalizing ("perspective-taking") capability. We develop a framework of mental capabilities that yields testable predictions about individual trading behavior, revenue distribution and aggregate outcomes. The two-dimensional structure of mental capabilities predicts the existence of four mental types with distinguishable trading patterns and revenues. Individuals will trade most successfully if and only if they have both capabilities. On the other hand, subjects who can mentalize well but have poor analytical capability will suffer the largest losses. As a consequence, being able in just one dimension does not assure trading success. We test these implications in a laboratory environment, where we first independently elicit subjects' capabilities in both dimensions and then conduct a standard asset market experiment. We find that individual trading gains and patterns are consistent with our theoretical predictions. Our results suggest that two mental dimensions are necessary to encompass the complex heterogeneous behaviors in asset markets; a one-dimensional measure of mental capability will lead to biased conclusions. The findings have potential implications for financial institutions, which can use the measures to select successful traders, or for policy-makers, helping them to prevent the formation of asset bubbles. Finally, our conceptual framework and the empirical screening method could be applied to explain heterogeneous behavior in other games.

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Section: Mental Models Capabilities and Distortionsmentioning

confidence: 99%

Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment

2016

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“…Over the whole year of 1998, the return of the internet stock index (the NASDAQ) was 117%, while for non-internet stocks, this was 6.5%. Over 1999, the return of the internet stock index surged to 816%, while for non-internet stocks, this number was 16.6% (Kaizoji et al, 2015). By March 2001, one year after the bubble ended, the cumulative sum of these astronomical returns for internet stocks had completely evaporated.…”

Section: Us Dotcom Bubble Ending In March 2000mentioning

confidence: 99%

Can We Use Volatility to Diagnose Financial Bubbles? Lessons from 40 Historical Bubbles

2017

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“…Approach Agent types Fixed/flexible Strategies Volume Tractable [27] chartists, fundamentalists fixed sound strategic partly analytically [28] chartists, fundamentalists fixed simple unit only numerically [29][30][31] chartists, fundamentalists fixed sound random only numerically [32] chartists, fundamentalists fixed realistic unit only numerically [33,34] chartists, random traders fixed simple random only numerically [35] chartists, fundamentalists fixed realistic strategic only numerically…”

Section: Introductionmentioning

confidence: 99%

Order book model with herd behavior exhibiting long-range memory

Kononovičius

Ruseckas

2019

Physica A: Statistical Mechanics and its Applications

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In this work, we propose an order book model with herd behavior. The proposed model is built upon two distinct approaches: a recent empirical study of the detailed order book records by Kanazawa et al.[Phys. Rev. Lett. 120, 138301] and financial herd behavior model. Combining these approaches allows us to propose a model that replicates the long-range memory of absolute returns and trading activity. We compare the statistical properties of the model against the empirical statistical properties of the Bitcoin exchange rates and New York stock exchange tickers. We also show that the fracture in the spectral density of the high-frequency absolute return time series might be related to the mechanism of convergence towards the equilibrium price. arXiv:1809.02772v3 [q-fin.ST]

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Super-exponential endogenous bubbles in an equilibrium model of fundamentalist and chartist traders

Cited by 41 publications

References 98 publications

Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment

Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment

Can We Use Volatility to Diagnose Financial Bubbles? Lessons from 40 Historical Bubbles

Order book model with herd behavior exhibiting long-range memory

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