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Frustration driven stock market dynamics: Leverage effect and asymmetry

Author

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  • Ahlgren, Peter Toke Heden
  • Jensen, Mogens H.
  • Simonsen, Ingve
  • Donangelo, Raul
  • Sneppen, Kim

Abstract

By applying inverse statistics to financial data it has recently been found from empirical studies that indices exhibit a pronounced gain-loss asymmetry [M.H. Jensen, Phys. Rev. Lett. 83 (1999) 76; I. Simonsen, M.H. Jensen, A. Johansen, Eur. Phys. J. B 27 (2002) 583; M.H. Jensen, A. Johansen, I. Simonsen, Physica A 324 (2003) 338]. This gain-loss asymmetry appears to have some similarities with the stylized fact leverage effect and we investigate if they could be of same origin. For this purpose we introduce the Frustration Governed Market model which includes correlations in time between a model index and its individual stocks. It is shown that the model reproduces very well the empirical findings with respect to gain-loss asymmetry and leverage. In special cases, however, the model may produce leverage without a pronounced gain-loss asymmetry.

Suggested Citation

  • Ahlgren, Peter Toke Heden & Jensen, Mogens H. & Simonsen, Ingve & Donangelo, Raul & Sneppen, Kim, 2007. "Frustration driven stock market dynamics: Leverage effect and asymmetry," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 1-4.
    • Handle: RePEc:eee:phsmap:v:383:y:2007:i:1:p:1-4
    DOI: 10.1016/j.physa.2007.04.081
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    Citations

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    Cited by:

    1. Jun-jie Chen & Bo Zheng & Lei Tan, 2014. "Agent-based model with asymmetric trading and herding for complex financial systems," Papers 1407.5258, arXiv.org.
    2. Łukasz Bil & Dariusz Grech & Magdalena Zienowicz, 2017. "Asymmetry of price returns—Analysis and perspectives from a non-extensive statistical physics point of view," PLOS ONE, Public Library of Science, vol. 12(11), pages 1-24, November.
    3. C. M. Rodr'iguez-Mart'inez & H. F. Coronel-Brizio & A. R. Hern'andez-Montoya, 2019. "A multi-scale symmetry analysis of uninterrupted trends returns of daily financial indices," Papers 1908.11204, arXiv.org.
    4. Rituparna Sen & Manavthi S, 2019. "Stylized facts of the Indian Stock Market," Papers 1903.05322, arXiv.org.
    5. Kei Katahira & Yu Chen & Gaku Hashimoto & Hiroshi Okuda, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Papers 1902.02040, arXiv.org.
    6. Katahira, Kei & Chen, Yu & Hashimoto, Gaku & Okuda, Hiroshi, 2019. "Development of an agent-based speculation game for higher reproducibility of financial stylized facts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 524(C), pages 503-518.
    7. Jun-Jie Chen & Bo Zheng & Lei Tan, 2013. "Agent-Based Model with Asymmetric Trading and Herding for Complex Financial Systems," PLOS ONE, Public Library of Science, vol. 8(11), pages 1-11, November.
    8. Rodríguez-Martínez, C.M. & Coronel-Brizio, H.F. & Hernández-Montoya, A.R., 2021. "A multi-scale symmetry analysis of uninterrupted trends returns in daily financial indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 574(C).
    9. Luis Goncalves de Faria, 2022. "An Agent-Based Model With Realistic Financial Time Series: A Method for Agent-Based Models Validation," Papers 2206.09772, arXiv.org.
    10. Rituparna Sen & Manavathi Subramaniam, 2019. "Stylized Facts of the Indian Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(4), pages 479-493, December.

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