scholarly journals Three Different Ways Synchronization can Cause Contagion in Financial Markets

2018 ◽  
Author(s):  
Jorgen Vitting Andersen ◽  
Naji Masaad
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Change Blindness ◽  
Market Performance ◽  
Large Change ◽  
Trading Strategies ◽  
Fire Dynamics ◽  
Integrate And Fire ◽  
Human Decision

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to "change blindness", a trait in human decision making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance and the use of certain (decoupled) trading strategies. The third pathway occurs through the effects of communication and its impact on human decision making. A model is introduced in which financial market performance has an impact on decision making through communication between people. Conversely, the sentiment created via communication has an impact on financial market performance.

scholarly journals Three Different Ways Synchronization Can Cause Contagion in Financial Markets

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 104 ◽  
Author(s):  
Naji Massad ◽  
Jørgen Andersen
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Change Blindness ◽  
Market Performance ◽  
Large Change ◽  
Fire Dynamics ◽  
Agent Based ◽  
Integrate And Fire ◽  
Human Decision

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision-making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to “change blindness”, a trait in human decision-making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance and the use of certain (decoupled) trading strategies. The third pathway occurs through the effects of communication and its impact on human decision-making. A model is introduced in which financial market performance has an impact on decision-making through communication between people. Conversely, the sentiment created via communication has an impact on financial market performance. The methodologies used are: agent based modeling, models of integrate-and-fire oscillators, and communication models of human decision-making.

Modern Financial Market Theory – A Critique Based on the Logic of Human Action

2021 ◽  
Vol 54 (3) ◽  
pp. 447-467
Author(s):  
Thorsten Polleit
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Rational Expectation ◽  
Efficient Market Hypothesis ◽  
Human Action ◽  
Market Theory ◽  
Expectation Theory ◽  
Market Economics

The modern financial market theory (MFMT) – based on the efficient market hypothesis, rational expectation theory, and modern portfolio theory – has become the standard approach in financial market economics. In this article, the MFMT will be critically ­reviewed using the logic of human action (or: praxeology) as an epistemological meta­theory. It will be shown that the MFMT exhibits (praxeo-)logical deficiencies so that it cannot provide investors with well-founded decision-making support in real-world financial markets.

scholarly journals Can Central Banking Policies Make a Difference in Financial Market Performance in Emerging Economies? The Case of India

Economies ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 49
Author(s):  
Gagan Deep Sharma ◽  
Mandeep Mahendru ◽  
Mrinalini Srivastava
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Market Performance ◽  
Fixed Effect Model ◽  
Central Banking ◽  
Currency Markets ◽  
Reserve Bank ◽  
Effect Model ◽  
Egarch Model ◽  
The Impact

This paper explores the importance of central banking policies in financial market performance, using the case of India. For this purpose, the paper comparatively analyzes the performance of financial markets during the regimes of last three governors of the Reserve Bank of India—Y V Reddy, D Subbarao, and Raghuram Rajan. The paper discusses the central banking policies in these periods with respect to monetary stability, inflation, and growth challenges. The paper presents an analysis of returns and volatility in stock markets and currency markets in their tenures in comparison with those from other selected emerging markets (Brazil, Russia, China, South Africa) and developed markets (USA and UK). The paper also brings out the leverage effect by applying the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model in addition to comparatively analyzing the performance of financial markets. Further, the paper assesses the impact of central banking policies on financial markets by using the fixed effect model on the reference countries for the period under reference.

Gender justice in financial markets

2017 ◽  
Author(s):  
Roseanne Russell ◽  
Charlotte Villiers
Keyword(s):  
Decision Making ◽  
Social Justice ◽  
Financial Markets ◽  
Financial Market ◽  
Business Case ◽  
Decision Makers ◽  
Gender Justice ◽  
Women Directors ◽  
Normative Foundation ◽  
The Subject

Financial markets have often been represented and treated as gender-neutral domains despite the consequences of their operation and the structure of their institutions being deeply gendered. In the post-financial crisis period the contribution of women to financial markets (whether as creditors, entrepreneurs, or consumers) has been the subject of intense interest. Particular attention has been paid to the identity of financial market decision-makers. A lack of women’s representation in the boardrooms of influential companies is considered problematic. In response, financial market actors have emphasized the “business case” for boardroom diversity. While the identity of corporate decision-makers is an important aspect of “gender-just” financial markets, the “business case” for reform lacks a secure theoretical and normative foundation. Instead, an alternative argument for women directors with a greater emphasis on social justice feminism is necessary if gender justice in financial market decision-making is realistically to be achieved.

scholarly journals Excessive self-confidence: The initiator of the irrational in behavioral finance

2020 ◽  
Vol 22 (2) ◽  
pp. 97-108
Author(s):  
Aleksandar Dogandžić ◽  
Nebojša Stošić ◽  
Sonja Dogandžić
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Market Efficiency ◽  
Financial Market ◽  
Behavioral Finance ◽  
Decision Making Process ◽  
Self Confidence ◽  
Irrational Behavior ◽  
The Subject ◽  
Decision Making Behavior

The classical theory of financial markets is based on the decision-making process based on hypotheses about "market efficiency", which implies rational decisionmaking that always brings the expected results that can be predicted and calculated. However, practice shows that there are situations of irrational decision-making in the markets, the results of which are far from predictable and expected. We need to study these situations through Behavioral Finance, which allows us to monitor the results of irrational decision-making behavior, which we call anomalies. Most irrational decisions are based on excessive self-confidence, so it is the subject of necessary continuous research in order to clarify this segment of irrational behavior in the behavior of actors in the financial market and thus use it to achieve optimal effects.

scholarly journals A Critical Review of the Main Approaches on Financial Market Dynamics Modelling

2015 ◽  
Vol 2 (2) ◽  
pp. 151-167 ◽  
Author(s):  
Lucian Pasca
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Cognitive Processes ◽  
Statistical Physics ◽  
Price Formation ◽  
Cognitive Level ◽  
Financial Systems ◽  
Flexible Framework ◽  
Dynamics Modelling

Abstract While the interpretation of the EMH has changed over the last 50 years, its meaningfulness continues to define our view on how financial markets work. Competing approaches such as BFT and ACT have been proven to be in particular cases of an infinite spectrum of market states; all come under the framework of the AMH. The flexible framework of the AMH enables a trans-disciplinary approach for the study of financial system dynamics. An evolutionary and contextual view on financial systems allows researchers to use techniques and instruments from quantum mechanics and statistical physics to quantify volatility and provide an interpretation to the cognitive processes underlying investor decision making. Such a context also enables to tackle the interpretation of information processing at a cognitive level through consideration of quantum effects in the price formation mechanism.

Machine learning and social theory: Collective machine behaviour in algorithmic trading

2021 ◽  
pp. 136843102110560
Author(s):  
Christian Borch
Keyword(s):  
Machine Learning ◽  
Decision Making ◽  
Financial Markets ◽  
Social Theory ◽  
Collective Behaviour ◽  
Algorithmic Trading ◽  
Human Decision ◽  
Securities Trading

This article examines what the rise in machine learning (ML) systems might mean for social theory. Focusing on financial markets, in which algorithmic securities trading founded on ML-based decision-making is gaining traction, I discuss the extent to which established sociological notions remain relevant or demand a reconsideration when applied to an ML context. I argue that ML systems have some capacity for agency and for engaging in forms of collective machine behaviour, in which ML systems interact with other machines. However, ML-based collective machine behaviour is irreducible to human decision-making and thereby challenges established sociological notions of financial markets (including that of embeddedness). I argue that such behaviour can nonetheless be analysed through an adaptation of sociological theories of interaction and collective behaviour.

Evaluating Human Decision-Making Theories With Monkey Data

2013 ◽  
Author(s):  
Scott D. Brown ◽  
Pete Cassey ◽  
Andrew Heathcote ◽  
Roger Ratcliff
Keyword(s):  
Decision Making ◽  
Human Decision

Evidence Supporting Theory of Shannon Capacity in Human Decision-Making

2013 ◽  
Author(s):  
Laurence T. Maloney ◽  
James Tee ◽  
Hang Zhang
Keyword(s):  
Decision Making ◽  
Shannon Capacity ◽  
Human Decision
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