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arXiv · 1212.2189

Transition in the Waiting-Time Distribution of Price-Change Events in a Global Socioeconomic System

Guannan Zhao·Mark McDonald·Dan Fenn·Stacy Williams·Neil F. Johnson
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Abstract

The goal of developing a firmer theoretical understanding of inhomogenous temporal processes -- in particular, the waiting times in some collective dynamical system -- is attracting significant interest among physicists. Quantifying the deviations in the waiting-time distribution away from one generated by a random process, may help unravel the feedback mechanisms that drive the underlying dynamics. We analyze the waiting-time distributions of high frequency foreign exchange data for the best executable bid-ask prices across all major currencies. We find that the lognormal distribution yields a good overall fit for the waiting-time distribution between currency rate changes if both short and long waiting times are included. If we restrict our study to long waiting-times, each currency pair's distribution is consistent with a power law tail with exponent near to 3.5. However for short waiting times, the overall distribution resembles one generated by an archetypal complex systems model in which boundedly rational agents compete for limited resources. Our findings suggest a gradual transition arises in trading behavior between a fast regime in which traders act in a boundedly rational way, and a slower one in which traders' decisions are driven by generic feedback mechanisms across multiple timescales and hence produce similar power-law tails irrespective of currency type.

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Guannan Zhao, Mark McDonald, Dan Fenn, Stacy Williams, Neil F. Johnson. 2012-12-10. Transition in the Waiting-Time Distribution of Price-Change Events in a Global Socioeconomic System. https://doi.org/10.1016/j.physa.2013.08.036

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