Market depth and price dynamics: A note
arXiv:cond-mat/0403723 · doi:10.1142/S0129183104006455
Abstract
This note explores the consequences of nonlinear price impact functions on price dynamics within the chartist-fundamentalist framework. Price impact functions may be nonlinear with respect to trading volume. As indicated by recent empirical studies, a given transaction may cause a large (small) price change if market depth is low (high). Simulations reveal that such a relationship may create endogenous complex price fluctuations even if the trading behavior of chartists and fundamentalists is linear.
9 pages from economist, including 4 figs, for Int. J. Mod. Phys. C 15, issue 7