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Speculative trading: the price multiplier effect

Abstract:

During a speculative episode the price of an item jumps from an initial level p1 to a peak level p2 before more or less returning to level p1 . The ratio p 2/p 1 is referred to as the amplitude A of the peak. This paper shows that for a given market the peak amplitude is a linear function of the logarithm of the price at the beginning of the speculative episode; with p1 expressed in 1999 euros the relationship takes the form: ; the values of the parameter a turn out to be relatively independent of the market considered: , the values of the parameter b are more market-dependent, but are stable in the course of time for a given market. This relationship suggests that the higher the stakes the more “bullish” the market becomes. Possible mechanisms of this “risk affinity” effect are discussed.

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Received 29 September 1999

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Roehner, B. Speculative trading: the price multiplier effect. Eur. Phys. J. B 14, 395–399 (2000). https://doi.org/10.1007/s100510050144

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  • PACS. 64.60.Fr Equilibrium properties near critical points, critical exponents - 87.23.Ge Dynamics of social systems