Herd behavior and aggregate fluctuations in financial markets

@article{Cont1997HerdBA,
  title={Herd behavior and aggregate fluctuations in financial markets},
  author={R. Cont and Jean-Philippe Bouchaud},
  journal={arXiv: Statistical Mechanics},
  year={1997}
}
  • R. Cont, Jean-Philippe Bouchaud
  • Published 1997
  • Physics, Economics, Mathematics
  • arXiv: Statistical Mechanics
  • We present a simple model of a stock market where a random communication structure between agents gives rise to a heavy tails in the distribution of stock price variations in the form of an exponentially truncated power-law, similar to distributions observed in recent empirical studies of high frequency market data. Our model provides a link between two well-known market phenomena: the heavy tails observed in the distribution of stock market returns on one hand and 'herding' behavior in… CONTINUE READING
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