Preferences, Belief Formation, and Market Dynamic Equilibrium in Trading When the Interaction of Traders Is Coherent

58 Pages Posted: 20 Apr 2017 Last revised: 14 Oct 2021

See all articles by Leilei Shi

Leilei Shi

Haitong Securities Co. Ltd.----Beijing Fuwaidajie; Haitong Securities Co. Ltd.----Beijing Fuwaidajie; International Institute of Finance, School of Management, University of Science and Technology of China (USTC)

Xinshuai Guo

University of Science and Technology of China (USTC) - School of Management

Andrea Fenu

University of San Diego; Universita di Cagliari; Boston University

Bing-Hong Wang

University of Science and Technology of China (USTC) - Department of Modern Physics

Date Written: October 12, 2021

Abstract

Preferences are intelligent, adaptive, and cooperative choices over price in trading if the interaction of traders is coherent in stock market. It justifies market dynamic equilibrium without the criterion of rationality. We select intraday cumulative trading volume distribution over the price as revealed preferences while an equilibrium price in beliefs is the price at which the corresponding cumulative trading volume achieves a maximum value. We examine a trading preference hypothesis in market dynamic equilibrium using tick-by-tick high frequency data in Chinese stock market, and account for local dynamic equilibrium and overall dynamic disequilibrium in financial market. Moreover, we have an explicit mathematical expression for nonlinear V-shaped price reversal trading over price and explain actually nonlinear V-shaped probability of selling as a function of profit by the behavior of interactive traders. Our study suggests that a behavioral financial economics theory realizing both descriptively accurate and normatively adequate goals can be extracted from a price-volume probability wave equation in the future.

Keywords: Trading Preferences; Interactive Coherence; Interactive Trader; Local Equilibrium; Overall Disequilibrium; Volume Distribution over Price

JEL Classification: D01; C60; G40; D91

Suggested Citation

Shi, Leilei and Shi, Leilei and Guo, Xinshuai and Fenu, Andrea and Fenu, Andrea and Wang, Bing-Hong, Preferences, Belief Formation, and Market Dynamic Equilibrium in Trading When the Interaction of Traders Is Coherent (October 12, 2021). Available at SSRN: https://ssrn.com/abstract=2955504 or http://dx.doi.org/10.2139/ssrn.2955504

Leilei Shi (Contact Author)

Haitong Securities Co. Ltd.----Beijing Fuwaidajie ( email )

Ground FL., Wantong Financial Mansion
#2 Fuwaidajie, Xicheng District
Beijing, Beijing 100037
China
+8618611270598 (Phone)

HOME PAGE: http://shileilei8.bokee.com

Haitong Securities Co. Ltd.----Beijing Fuwaidajie ( email )

Ground FL., Wantong Financial Mansion
#2 Fuwaidajie, Xicheng District
Beijing, 100037
China
0086+18611270598 (Phone)

HOME PAGE: http://https://www.htsec.com/ChannelHome/4793976/index.shtml

International Institute of Finance, School of Management, University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China
(0086)18611270598,13671328061 (Phone)

Xinshuai Guo

University of Science and Technology of China (USTC) - School of Management ( email )

China

Andrea Fenu

Universita di Cagliari ( email )

Cagliari, 09124
Italy

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Bing-Hong Wang

University of Science and Technology of China (USTC) - Department of Modern Physics ( email )

China

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