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Predictable markets? A news-driven model of the stock market

Author

Listed:
  • Gusev, Maxim
  • Kroujiline, Dimitri
  • Govorkov, Boris
  • Sharov, Sergey V.
  • Ushanov, Dmitry
  • Zhilyaev, Maxim

Abstract

We attempt to explain stock market dynamics in terms of the interaction among three variables: market price, investor opinion and information flow. We propose a framework for such interaction and apply it to build a model of stock market dynamics which we study both empirically and theoretically. We demonstrate that this model replicates observed market behavior on all relevant timescales (from days to years) reasonably well. Using the model, we obtain and discuss a number of results that pose implications for current market theory and offer potential practical applications.

Suggested Citation

  • Gusev, Maxim & Kroujiline, Dimitri & Govorkov, Boris & Sharov, Sergey V. & Ushanov, Dmitry & Zhilyaev, Maxim, 2014. "Predictable markets? A news-driven model of the stock market," MPRA Paper 58831, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58831
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    References listed on IDEAS

    as
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    1. Edson Kambeu & Olipha Mpofu & Drayton Muchochoma, 2017. "Price Discovery and Volatility:A theoretical Approach," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(2), pages 37-43, April.

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    More about this item

    Keywords

    stock market; market dynamics; return predictability; news analysis; language patterns; investor behavior; herding; business cycle; sentiment evolution; reference sentiment level; volatility; return distribution; Ising; agent‐based models; price feedback; nonlinear dynamical systems;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • G1 - Financial Economics - - General Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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