Publication details

Publications

Transmission of Information and Herd Behavior: an Application to Financial Markets

Eguíluz, Víctor M.; Zimmermann, M.G.
Physical Review Letters 85, 5659-5662 (2000)

We propose a model for stochastic formation of opinion clusters,
modelled by a evolving network, and herd behaviour to account for the observed
fat-tail distribution in returns of financial-price data. The only parameter
of the model is h, the rate of information dispersion per trade,
which is a measure of herding behavior. For h below a critical h*
the system displays a power-law distribution of the returns with exponential
cut-off. However for h > h* an increase in the probability
of large returns is found, and may be associated to the occurrence of large
crashes.

PACS: 87.23.Ge, 02.50.Le, 05.45.Tp, 05.65.+b

Also at LANL preprint server as paper cond-mat/9908069.