Delay, feedback and quenching in financial markets

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14 Citations (Scopus)


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.
Original languageEnglish
Pages (from-to)347-362
Number of pages16
JournalEuropean Physical Journal B - Condensed Matter and Complex Systems
Issue number2
Publication statusPublished - 1 Sep 2000


  • stochastic process
  • geometric Brownian motion
  • market delay

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