Herd behavior and financial crashes: an interacting particle system approach (Q670597)
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English | Herd behavior and financial crashes: an interacting particle system approach |
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Herd behavior and financial crashes: an interacting particle system approach (English)
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18 March 2019
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Summary: We provide an approach based on a modification of the Ising model to describe the dynamics of stock markets. Our model incorporates three different factors: imitation, the impact of external news, and private information; moreover, it is characterized by coupling coefficients, static in time, but not identical for each agent. By analogy with physical models, we consider the \textit{temperature} parameter of the system, assuming that it evolves with memory of the past, hence considering how former news influences realized market returns. We show that a standard Ising potential assumption is not sufficient to reproduce the stylized facts characterizing financial markets; this is because it assigns low probabilities to rare events. Hence, we study a variation of the previous setting providing, also by concrete computations, new insights and improvements.
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