We present a simple model of a stock market where a random communication structure between agents generically gives rise to a heavy tails in the distribution of stock price variations in the form of an exponentially truncated power-law, similar to distributions observed in recent empirical studies of high frequency market data. Our model provides a link between two well-known market phenomena: ...

We study a financial market economy with a continuum of borrowers and pooling of borrowers’ promises. Under these conditions and in the absence of designing costs, utility-maximizing decisions of price-taking borrowersmay lead to financial market incompleteness. Parametrizing equilibria through the borrowers’ no-arbitrage beliefs, we link expectations to the financial market structure. Markets ...

Financial markets are the most widely studied examples of economic systems, both at the empirical and the theoretical level. The study of price, supply and demand in these markets reveals interesting empirical observations whose explanation in the framework of standard equilibrium models is a challenge. Representing a financial market as a system of agents with simple behavioral rules leads to ...

We investigate the fluctuation behaviors of financial stock markets by Zipf analysis. In the present paper, the empirical research is made to describe ensembles and specifics of stock price returns for global stock indices, and the corresponding Zipf distributions are given. First we study the fluctuation behavior of global stock markets by m, k -Zipf method. Then we consider a dynamic stock pr...

We show that differences in investors risk aversion can generate herd behavior in stock markets where assets are traded sequentially. This in turn prevents markets from being efficient in the sense that Þnancial market prices do not converge to the asset’s fundamental value. The informational efficiency of the market depends on the distribution of the risky asset across risk averse agents. Thes...

Crises in financial markets affect humans worldwide. Detailed market data on trading decisions reflect some of the complex human behavior that has led to these crises. We suggest that massive new data sources resulting from human interaction with the Internet may offer a new perspective on the behavior of market participants in periods of large market movements. By analyzing changes in Google q...

In this paper we investigate the effects of herding on asset price dynamics during continuous trading. We focus on the role of interaction among traders, and we investigate the dynamics emerging when we allow for a tendency to mimic the actions of other investors, that is, to engage in herd behavior. The model, built as a mean field in a binary setting (buy/sell decisions of a risky asset), is ...