Predictable Markets? A News-Driven Model of the Stock Market

48 Pages Posted: 3 Aug 2015  

Maxim Gusev

IBC Quantitative Strategies

Dimitri Kroujiline

LGT Capital Partners

Boris Govorkov

IBC Quantitative Strategies

Sergey V. Sharov

N.I. Lobachevsky State University, Advanced School of General & Applied Physics

Dmitry Ushanov

Moscow State University, Department of Mechanics and Mathematics

Maxim Zhilyaev

Mozilla Corp.

Date Written: May 1, 2015

Abstract

We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market dynamics which we study both empirically and theoretically. We demonstrate that this model replicates observed market behavior on all relevant timescales (from days to years) reasonably well. Using the model, we obtain and discuss a number of results that pose implications for current market theory and offer potential practical applications.

Suggested Citation

Gusev, Maxim and Kroujiline, Dimitri and Govorkov, Boris and Sharov, Sergey V. and Ushanov, Dmitry and Zhilyaev, Maxim, Predictable Markets? A News-Driven Model of the Stock Market (May 1, 2015). Algorithmic Finance (2015), 4:1-2, 5-51. Available at SSRN: https://ssrn.com/abstract=2636414

Maxim Gusev

IBC Quantitative Strategies

Ta ̈rnaby
Sweden

Dimitri Kroujiline (Contact Author)

LGT Capital Partners ( email )

Pfa ̈ffikon
Switzerland

Boris Govorkov

IBC Quantitative Strategies

Ta ̈rnaby
Sweden

Sergey V. Sharov

N.I. Lobachevsky State University, Advanced School of General & Applied Physics

23 Prospekt Gagarina
Nizhni Novgorod, 603950
Russia

Dmitry Ushanov

Moscow State University, Department of Mechanics and Mathematics

GSP-2, Leninskie Gory
Moscow, 119992
Russia

Maxim Zhilyaev

Mozilla Corp.

Mountain View, CA
United States

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