Financial Symmetry and Moods in the Market

PLoS ONE 10(4): e0118224.

21 Pages Posted: 21 May 2014 Last revised: 13 May 2015

See all articles by Roberto Savona

Roberto Savona

University of Brescia

Maxence Soumare

Université de Nice Sophia Antipolis - Laboratoire Jean-Alexandre Dieudonné

Jorgen Vitting Andersen

CES, Université Paris 1 Panthéon-Sorbonne

Date Written: April 10, 2015

Abstract

This paper introduces a theoretical framework for collective decision making to describe fluctuations and transitions in financial markets. Investors are assumed to be boundedly rational, using a limited set of information including past price history and expectation on future dividends. Investment strategies are dynamically changed based on realized returns within a game theoretical scheme with Nash equilibria. In such a setting, markets behave as complex systems whose payoff reflect an intrinsic financial symmetry that guarantees equilibrium in price dynamics (fundamentalist state) until the symmetry is broken leading to bubble or anti-bubble scenarios (speculative state). We model such two-phase transition in a micro-to-macro scheme through a Ginzburg-Landau-based power expansion leading to a market temperature parameter which modulates the state transitions in the market. Via simulations we prove that complex market dynamics can be phenomenologically explained by the number of traders, the strategies used by agents and the past price history, all included in our market temperature parameter.

Keywords: Agent-based modelling, Game theory, Ginzburg-Landau theory, Financial symmetry

JEL Classification: G14, C73

Suggested Citation

Savona, Roberto and Soumare, Maxence and Vitting Andersen, Jorgen, Financial Symmetry and Moods in the Market (April 10, 2015). PLoS ONE 10(4): e0118224., Available at SSRN: https://ssrn.com/abstract=2439273 or http://dx.doi.org/10.2139/ssrn.2439273

Roberto Savona (Contact Author)

University of Brescia ( email )

C/da S. Chiara nr. 50
25122 Brescia
Italy

Maxence Soumare

Université de Nice Sophia Antipolis - Laboratoire Jean-Alexandre Dieudonné ( email )

Parc Valrose
Nice Cedex 2, 06108
France

Jorgen Vitting Andersen

CES, Université Paris 1 Panthéon-Sorbonne ( email )

Maison des Sciences Economiques
106-112 Boulevard de l'Hôpital 75647 Paris Cedex
Paris, 75647
France

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