Physics – Condensed Matter – Statistical Mechanics
Scientific paper
2002-11-15
Nonlinear Analysis: Modelling and Control, 2002, v. 7, No. 1, p. 43-54
Physics
Condensed Matter
Statistical Mechanics
11 pages, 3 figures
Scientific paper
Stock price change in financial market occurs through transactions in analogy with diffusion in stochastic physical systems. The analysis of price changes in real markets shows that long-range correlations of price fluctuations largely depend on the number of transactions. We introduce the multiplicative stochastic model of time interval between trades and analyze spectral density and correlations of the number of transactions. The model reproduces spectral properties of the real markets and explains the mechanism of power law distribution of trading activity. Our study provides an evidence that statistical properties of financial markets are enclosed in the statistics of the time interval between trades. Multiplicative stochastic diffusion may serve as a consistent model for this statistics.
Gontis Vygintas
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