EXACT SOLUTION OF A MODEL FOR CROWDING AND INFORMATION TRANSMISSION IN FINANCIAL MARKETS

DOI10.1142/S0219024900000784MaRDI QIDQ4528079zbMATH OpenOpenAlexWikidataFDO

Authors R. D'Hulst, G. J. Rodgers

Publication date 2000

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/9908481

zbMATH Keywords

statisticsherdingeconomymarket organization

Mathematics Subject Classification ID

Microeconomic theory (price theory and economic markets) (91B24)

Abstract: An exact solution is presented to a model that mimics the crowding effect in financial markets which arises when groups of agents share information. We show that the size distribution of groups of agents has a power law tail with an exponential cut-off. As the size of these groups determines the supply and demand balance, this implies heavy tails in the distribution of price variation. The moments of the distribution are calculated, as well as the kurtosis. We find that the kurtosis is large for all model parameter values and that the model is not self-organizing.

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