IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v392y2013i24p6458-6469.html
   My bibliography  Save this article

Transition in the waiting-time distribution of price-change events in a global socioeconomic system

Author

Listed:
  • Zhao, Guannan
  • McDonald, Mark
  • Fenn, Dan
  • Williams, Stacy
  • Johnson, Nicholas
  • Johnson, Neil F.

Abstract

The goal of developing a firmer theoretical understanding of inhomogeneous temporal processes–in particular, the waiting times in some collective dynamical system–is attracting significant interest among physicists. Quantifying the deviations between the waiting-time distribution and the distribution generated by a random process may help unravel the feedback mechanisms that drive the underlying dynamics. We analyze the waiting-time distributions of high-frequency foreign exchange data for the best executable bid–ask prices across all major currencies. We find that the lognormal distribution yields a good overall fit for the waiting-time distribution between currency rate changes if both short and long waiting times are included. If we restrict our study to long waiting times, each currency pair’s distribution is consistent with a power-law tail with exponent near to 3.5. However, for short waiting times, the overall distribution resembles one generated by an archetypal complex systems model in which boundedly rational agents compete for limited resources. Our findings suggest that a gradual transition arises in trading behavior between a fast regime in which traders act in a boundedly rational way and a slower one in which traders’ decisions are driven by generic feedback mechanisms across multiple timescales and hence produce similar power-law tails irrespective of currency type.

Suggested Citation

  • Zhao, Guannan & McDonald, Mark & Fenn, Dan & Williams, Stacy & Johnson, Nicholas & Johnson, Neil F., 2013. "Transition in the waiting-time distribution of price-change events in a global socioeconomic system," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(24), pages 6458-6469.
  • Handle: RePEc:eee:phsmap:v:392:y:2013:i:24:p:6458-6469
    DOI: 10.1016/j.physa.2013.08.036
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437113007656
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

    File URL: https://libkey.io/10.1016/j.physa.2013.08.036?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bouchaud,Jean-Philippe & Potters,Marc, 2009. "Theory of Financial Risk and Derivative Pricing," Cambridge Books, Cambridge University Press, number 9780521741866, October.
    2. Johnson, Neil F. & Jefferies, Paul & Hui, Pak Ming, 2003. "Financial Market Complexity," OUP Catalogue, Oxford University Press, number 9780198526650.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. G., Mauricio Contreras & Peña, Juan Pablo, 2019. "The quantum dark side of the optimal control theory," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 515(C), pages 450-473.
    2. Tobias Galla & David Sherrington, 2005. "Stationary states of a spherical Minority Game with ergodicity breaking," Papers cond-mat/0508413, arXiv.org, revised Aug 2005.
    3. Lim, Gyuchang & Kim, SooYong & Kim, Junghwan & Kim, Pyungsoo & Kang, Yoonjong & Park, Sanghoon & Park, Inho & Park, Sang-Bum & Kim, Kyungsik, 2009. "Structure of a financial cross-correlation matrix under attack," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(18), pages 3851-3858.
    4. V. Alfi & L. Pietronero & A. Zaccaria, 2008. "Minimal Agent Based Model For The Origin And Self-Organization Of Stylized Facts In Financial Markets," Papers 0807.1888, arXiv.org.
    5. Gou, Chengling & Guo, Xiaoqian & Chen, Fang, 2008. "Study on system dynamics of evolutionary mix-game models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(25), pages 6353-6359.
    6. Pištěk, Miroslav & Slanina, František, 2011. "Diversity of scales makes an advantage: The case of the Minority Game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(13), pages 2549-2561.
    7. Li, Da-Ye & Nishimura, Yusaku & Men, Ming, 2014. "Fractal markets: Liquidity and investors on different time horizons," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 407(C), pages 144-151.
    8. Moews, Ben & Ibikunle, Gbenga, 2020. "Predictive intraday correlations in stable and volatile market environments: Evidence from deep learning," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 547(C).
    9. Ferreira, Fernando F. & de Oliveira, Viviane M. & Crepaldi, Antônio F. & Campos, Paulo R.A., 2005. "Agent-based model with heterogeneous fundamental prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 357(3), pages 534-542.
    10. Oldham, Matthew, 2020. "Quantifying the concerns of Dimon and Buffett with data and computation," Journal of Economic Dynamics and Control, Elsevier, vol. 113(C).
    11. Eliazar, Iddo & Cohen, Morrel H., 2011. "The universal macroscopic statistics and phase transitions of rank distributions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4293-4303.
    12. Ted Theodosopoulos, 2004. "Uncertainty relations in models of market microstructure," Papers math/0409076, arXiv.org, revised Feb 2005.
    13. A. Garcia-Bernabeu & J. V. Salcedo & A. Hilario & D. Pla-Santamaria & Juan M. Herrero, 2019. "Computing the Mean-Variance-Sustainability Nondominated Surface by ev-MOGA," Complexity, Hindawi, vol. 2019, pages 1-12, December.
    14. Kostanjcar, Zvonko & Jeren, Branko & Juretic, Zeljan, 2012. "Impact of uncertainty in expected return estimation on stock price volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5563-5571.
    15. Ni, Y.C. & Xu, C. & Hui, P.M. & Johnson, N.F., 2009. "Cooperative behavior in evolutionary snowdrift game with bounded rationality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(23), pages 4856-4862.
    16. Niu, Hongli & Wang, Jun, 2017. "Return volatility duration analysis of NYMEX energy futures and spot," Energy, Elsevier, vol. 140(P1), pages 837-849.
    17. Strozzi, Fernanda & Zaldívar, José-Manuel & Zbilut, Joseph P., 2007. "Recurrence quantification analysis and state space divergence reconstruction for financial time series analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 487-499.
    18. repec:dau:papers:123456789/7471 is not listed on IDEAS
    19. Strozzi, F. & Zaldívar, J.M., 2005. "Non-linear forecasting in high-frequency financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 463-479.
    20. 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).
    21. Indranil Mukherjee & Amitava Sarkar, 2011. "Complexity, Financial Markets and their Scaling Laws," DEGIT Conference Papers c016_008, DEGIT, Dynamics, Economic Growth, and International Trade.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:392:y:2013:i:24:p:6458-6469. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.