Modelling and measuring the irrational behaviour of agents in financial markets: Discovering the psychological soliton |
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| Institution: | 1. School of Business, London South Bank University, 103 Borough Road, London SE1 0AA, United Kingdom;2. School of Management, University of Leicester, University Road, Leicester LE1 7RH, United Kingdom;3. GRAPES, rue de la Belle Jardiniere 483, B-4031 Angleur, Belgium;4. eHumanitiesgroup, Royal Netherlands Academy of Arts and Sciences, Joan Muyskenweg 25, 1096 CJ, Amsterdam, The Netherlands\n;1. Photonics group, Research Institute for Applied Physics and Astronomy, University of Tabriz, Tabriz, Iran;2. Department of Physics, Payame Noor University, P.O. Box: 19395-3697, Tehran, Iran;1. Institute of Mathematics of the Romanian Academy, 21 Calea Griviţei Street, 010702; P.O. Box 1-764, 014700, Bucharest, Romania;2. Department of mathematics, University of Illinois, 1409 West Green Street, Urbana, IL 61801, USA;1. Department of Mathematics and Statistics, University of Arkansas at Little Rock, Little Rock, AR 72204-1099, USA;2. College of Sciences, Hebei University of Science and Technology, Shijiazhuang, 050018, Hebei, PR China;1. Faculty of Agriculture, University of Novi Sad, Serbia;2. Faculty of Sciences, University of Novi Sad, Serbia |
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| Abstract: | Following a Geometrical Brownian Motion extension into an Irrational fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We specifically discuss the role of financial news or economic information positive or negative feedback of such irrational (or contrarian) agents upon the price evolution. We observe a kink-like effect reminiscent of soliton behaviour, suggesting how analysts' forecasts errors induce stock prices to adjust accordingly, thereby proposing a measure of the irrational force in a market. |
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