Emergence of universal scaling in financial markets from mean-field dynamics

Abstract

Collective phenomena with universal properties have been observed in many complex systems with a large number of components. Here we present a microscopic model of the emergence of scaling behavior in such systems, where the interaction dynamics between individual components is mediated by a global variable making the mean-field description exact. Using the example of financial markets, we show that asset price can be such a global variable with the critical role of coordinating the actions of agents who are otherwise independent. The resulting model accurately reproduces empirical properties such as the universal scaling of the price fluctuation and volume distributions, long-range correlations in volatility and multiscaling.

5 pages, 3 figures

References in corpus (4)

• Collective behavior of stock price movements in an emerging market
• Inverse cubic law of index fluctuation distribution in Indian markets
• Self-organization of price fluctuation distribution in evolving markets
• Scaling and efficiency determine the irreversible evolution of a market

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