Self-Organized Percolation Model for Stock Market Fluctuations

Preprint

29 June 1999

preprint
Published by arXiv in arXiv

https://doi.org/10.48550/arXiv.cond-mat/9906434

Abstract

In the Cont-Bouchaud model [cond-mat/9712318] of stock markets, percolation clusters act as buying or selling investors and their statistics controls that of the price variations. Rather than fixing the concentration controlling each cluster connectivity artificially at or close to the critical value, we propose that clusters shatter and aggregate continuously as the concentration evolves randomly, reflecting the incessant time evolution of groups of opinions and market moods. By the mechanism of ``sweeping of an instability'' [D. Sornette, Journal de Physique I 4, 209 (1994)], this market model spontaneously exhibits reasonable power law statistics for the distribution of price changes and accounts for the other important stylized facts of stock market price fluctuations.

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Version 1, 1999-06-29, ArXiv
Published version: Physica A: Statistical Mechanics and its Applications, 271 (3-4), 496.

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