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Opinion dynamics in financial markets via random networks

Proceedings of the National Academy of Sciences - PNAS, 2022-12, Vol.119 (49), p.1 [Peer Reviewed Journal]

Copyright National Academy of Sciences Dec 6, 2022 ;ISSN: 0027-8424 ;EISSN: 1091-6490 ;DOI: 10.1073/pnas.220157311

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  • Title:
    Opinion dynamics in financial markets via random networks
  • Author: Granha, Mateus FB ; Vilela, André L M ; Wang, Chao ; Nelson, Kenric P ; Stanley, H Eugene
  • Subjects: Histograms ; Logarithms ; Securities markets ; Social factors ; Social interactions
  • Is Part Of: Proceedings of the National Academy of Sciences - PNAS, 2022-12, Vol.119 (49), p.1
  • Description: We investigate financial market dynamics by introducing a heterogeneous agent-based opinion formation model. In this work, we organize individuals in a financial market according to their trading strategy, namely, whether they are noise traders or fundamentalists. The opinion of a local majority compels the market exchanging behavior of noise traders, whereas the global behavior of the market influences the decisions of fundamentalist agents. We introduce a noise parameter, q, to represent the level of anxiety and perceived uncertainty regarding market behavior, enabling the possibility of adrift financial action. We place individuals as nodes in an Erdös-Rényi random graph, where the links represent their social interactions. At any given time, individuals assume one of two possible opinion states ±1 regarding buying or selling an asset. The model exhibits fundamental qualitative and quantitative real-world market features such as the distribution of logarithmic returns with fat tails, clustered volatility, and the long-term correlation of returns. We use Student's t distributions to fit the histograms of logarithmic returns, showing a gradual shift from a leptokurtic to a mesokurtic regime depending on the fraction of fundamentalist agents. Furthermore, we compare our results with those concerning the distribution of the logarithmic returns of several real-world financial indices.
  • Publisher: Washington: National Academy of Sciences
  • Language: English
  • Identifier: ISSN: 0027-8424
    EISSN: 1091-6490
    DOI: 10.1073/pnas.220157311
  • Source: GFMER Free Medical Journals
    PubMed Central
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