Modelling and Measuring the Irrational behaviour of Agents in Financial Markets: Discovering the Psychological Soliton
arXiv:1601.01553 · doi:10.1016/j.chaos.2015.12.015
Abstract
Following a Geometrical Brownian Motion extension into an Irrational Fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We specifically discuss the role of financial news or economic information positive or negative feedback of such irrational (or contrarian) agents upon the price evolution. We observe a kink-like effect reminiscent of soliton behaviour, suggesting how analysts' forecasts errors induce stock prices to adjust accordingly, thereby proposing a measure of the irrational force in a market.
14 pages, 5 figures, 33 references; prepared for a special issue of Chaos, Solitons & Fractals
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