Two-phase phenomena, minority games, and herding models

Abstract

The recently discovered two-phase phenomenon in financial markets [Nature 421, 130 (2003)] is examined with the German financial index DAX, minority games, and dynamic herding models. It is observed that the two-phase phenomenon is an important characteristic of financial dynamics, independent of volatility clustering. An interacting herding model correctly produces the two-phase phenomenon.

Grafting of higher-order correlations of real financial markets into herding models

“…The second major result of this study is the synergetic effect of a model approach and a real data analysis. By attaching the nonlinear correlation structure of real financial data to the simulated returns from the model, herein the EZ model [7], and its modified version, slow convergence to a Gaussian behavior is explicitly observed in terms of scaling of moments. This additional algorithm of nonlinear correlations can be useful for generating many simulated returns, which are closer to the stylized features of real financial databases.…”

Dynamic bifurcations on financial markets

“…Nevertheless, the two-phase phenomenon was again examined in the DAX financial index in [60] , using minority games and dynamic herding models. They found that this phenomenon is a significant characteristic of financial dynamics, independent of volatility clustering.…”

Toward a Unifying Perspective on Economic Complexity: The Contribution of Chinese Econophysics Community

“…Li [70] for instance offered an agent modelling based explanation for some financial characteristics of assets returns while Zheng et al [71] rather focused on the agent-based modelling of herding behaviour combined with phase-transition analysis to describe financial dynamics. Wang [72] developed an evolutionary game theoretical model to describe the dynamics of wealth distributions in China.…”