Delay, feedback and quenching in financial markets

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

An asset whose price exhibits geometric Brownian motion is analysed. The basic Brownian motion model is modified to account for the effects of market delay and investor feedback. A Langevin equation model is appropriate. When the feedback coupling is sufficiently strong, the market dynamics switches from a slow random walk behaviour to a rapid unstable behaviour with a fast time scale characteristic of the market delay. The unstable runaway behaviour is subsequently quenched by investors deserting a collapsing market or saturating a booming one. This quenching effect is sufficient to ensure long term bounding of the asset price. A form of market sabotage is demonstrated in which investors can push the market from a stable to an unstable regime.
LanguageEnglish
Pages347-362
Number of pages16
JournalEuropean Physical Journal B - Condensed Matter and Complex Systems
Volume17
Issue number2
DOIs
Publication statusPublished - 1 Sep 2000

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Brownian movement
Quenching
quenching
Feedback
sabotage
Switches
random walk
switches
Financial markets

Keywords

  • stochastic process
  • geometric Brownian motion
  • market delay

Cite this

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Delay, feedback and quenching in financial markets. / Grassia, P.S.

In: European Physical Journal B - Condensed Matter and Complex Systems, Vol. 17, No. 2, 01.09.2000, p. 347-362.

Research output: Contribution to journalArticle

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