Financial price dynamics and pedestrian counterflows: A comparison of statistical stylized facts

Daniel R. Parisi, Didier Sornette, and Dirk Helbing
Phys. Rev. E 87, 012804 – Published 10 January 2013

Abstract

We propose and document the evidence for an analogy between the dynamics of granular counterflows in the presence of bottlenecks or restrictions and financial price formation processes. Using extensive simulations, we find that the counterflows of simulated pedestrians through a door display eight stylized facts observed in financial markets when the density around the door is compared with the logarithm of the price. Finding so many stylized facts is very rare indeed among all agent-based models of financial markets. The stylized properties are present when the agents in the pedestrian model are assumed to display a zero-intelligent behavior. If agents are given decision-making capacity and adapt to partially follow the majority, periods of herding behavior may additionally occur. This generates the very slow decay of the autocorrelation of absolute return due to an intermittent dynamics. Our findings suggest that the stylized facts in the fluctuations of the financial prices result from a competition of two groups with opposite interests in the presence of a constraint funneling the flow of transactions to a narrow band of prices with limited liquidity.

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  • Received 14 May 2012

DOI:https://doi.org/10.1103/PhysRevE.87.012804

©2013 American Physical Society

Authors & Affiliations

Daniel R. Parisi1,2,*, Didier Sornette3,†, and Dirk Helbing4,‡

  • 1Instituto Tecnológico de Buenos Aires, 25 de Mayo 444, (1002) C. A. de Buenos Aires, Argentina
  • 2Comisión Nacional de Investigaciones Científicas y Técnicas (CONICET), Argentina
  • 3Department of Management, Technology and Economics, ETH Zürich, Scheuchzerstrasse 7, CH-8092 Zürich, Switzerland
  • 4Chair of Sociology, in particular of Modeling and Simulation, ETH Zürich, Clausiusstrasse 50, CH-8092 Zürich, Switzerland

  • *dparisi@itba.edu.ar
  • dsornette@ethz.ch
  • dhelbing@ethz.ch

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Vol. 87, Iss. 1 — January 2013

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Physical Review E Scope Description to Include Biological Physics
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The editors of Physical Review E are pleased to announce that the journal’s stated scope has been expanded to explicitly include the term “Biological Physics.”

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