Self-organization and the persistence of noise in financial markets

Goldbaum, D

Self-organization and the persistence of noise in financial markets

Goldbaum, D

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Publication Type:: Journal Article
Citation:: Journal of Economic Dynamics and Control, 2006, 30 (9-10), pp. 1837 - 1855
Issue Date:: 2006-09-01

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Field	Value	Language
dc.contributor.author	Goldbaum, D https://orcid.org/0000-0002-4228-1408	en_US
dc.date.issued	2006-09-01	en_US
dc.identifier.citation	Journal of Economic Dynamics and Control, 2006, 30 (9-10), pp. 1837 - 1855	en_US
dc.identifier.issn	0165-1889	en_US
dc.identifier.uri	http://hdl.handle.net/10453/5099
dc.description.abstract	A dynamic model of financial markets with learning is demonstrated to produce a self-organized system that displays critical behavior. The price contains private information that traders learn to extract and employ to forecast future value. Since the price reflects the beliefs of the traders, the learning process is self-referencing. As the market learns to correctly extract information from the price, the market deemphasizes private information. Despite the convergence of the model towards the parameters producing efficiency, pricing deviations remain constant due to the increased sensitivity of the price to small errors in information extraction produced by the model's own convergence. © 2006 Elsevier B.V. All rights reserved.	en_US
dc.relation.ispartof	Journal of Economic Dynamics and Control	en_US
dc.relation.isbasedon	10.1016/j.jedc.2005.08.015	en_US
dc.subject.classification	Economics	en_US
dc.title	Self-organization and the persistence of noise in financial markets	en_US
dc.type	Journal Article
utslib.citation.volume	9-10	en_US
utslib.citation.volume	30	en_US
utslib.for	140207 Financial Economics	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.issue	9-10	en_US
pubs.publication-status	Published	en_US
pubs.volume	30	en_US

Abstract:

A dynamic model of financial markets with learning is demonstrated to produce a self-organized system that displays critical behavior. The price contains private information that traders learn to extract and employ to forecast future value. Since the price reflects the beliefs of the traders, the learning process is self-referencing. As the market learns to correctly extract information from the price, the market deemphasizes private information. Despite the convergence of the model towards the parameters producing efficiency, pricing deviations remain constant due to the increased sensitivity of the price to small errors in information extraction produced by the model's own convergence. © 2006 Elsevier B.V. All rights reserved.

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http://hdl.handle.net/10453/5099