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arxiv: cond-mat/9910376 · v1 · submitted 1999-10-23 · ❄️ cond-mat.stat-mech · q-fin.TR

Speculative trading: the price multiplier effect

classification ❄️ cond-mat.stat-mech q-fin.TR
keywords marketlevelpeakpricespeculativeamplitudeeffectepisode
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During a speculative episode the price of an item jumps from an initial level p_1 to a peak level p_2 before more or less returning to level p_1. The ratio p_2/p_1 is referred to as the amplitude A of the peak. This paper shows that for a given market the peak amplitude is a linear function of the logarithm of the price at the beginning of the speculative episode; with p_1 expressed in 1999 euros the relationship takes the form: $ A=a\ln p_1 +b $; the values of the parameter a turn out to be relatively independent of the market considered: $ a \simeq 0.5 $, the values of the parameter b are more market-dependent, but are stable in the course of time for a given market. This relationship suggests that the higher the stakes the more "bullish" the market becomes. Possible mechanisms of this "risk affinity" effect are discussed.

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