SFI Working Paper Abstract
2000
| Title: | The Price Dynamics of Common Trading Strategies |
| Author(s): | J. Doyne Farmer and Shareen Joshi |
| Files: | [gzipped postscript] [postscript] [pdf] |
| Paper #: | 00-12-069 |
| Abstract: | A deterministic trading strategy can be regarded as a signal-processing element that uses external information and past prices as inputs and incorporates them into future prices. This paper uses a market-maker-based method of price formation to study the price dynamics induced by several commonly used financial strategies, showing how they amplify noise, induce structure in prices, and cause phenomena such as excess and clustered volatility. |