Exact Solution of a Model for Crowding and Information Transmission in Financial Markets

Preprint

31 August 1999

preprint
Published by arXiv in arXiv

https://doi.org/10.48550/arXiv.cond-mat/9908481

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.

Keywords

INFORMATION TRANSMISSION
FINANCIAL MARKETS
CROWDING EFFECT
EXPONENTIAL CUT
EXACT SOLUTION
HEAVY TAILS
LAW TAIL
KURTOSIS
MARKETS

All Related Versions

Version 1, 1999-08-31, ArXiv

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