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arXiv · 1601.01553

Modelling and Measuring the Irrational behaviour of Agents in Financial Markets: Discovering the Psychological Soliton

Gurjeet Dhesi·Marcel Ausloos
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Abstract

Following a Geometrical Brownian Motion extension into an Irrational Fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We specifically discuss the role of financial news or economic information positive or negative feedback of such irrational (or contrarian) agents upon the price evolution. We observe a kink-like effect reminiscent of soliton behaviour, suggesting how analysts' forecasts errors induce stock prices to adjust accordingly, thereby proposing a measure of the irrational force in a market.

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Gurjeet Dhesi, Marcel Ausloos. 2016-01-07. Modelling and Measuring the Irrational behaviour of Agents in Financial Markets: Discovering the Psychological Soliton. https://doi.org/10.1016/j.chaos.2015.12.015

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