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“Critical price impact and the
intrinsic fragility of financial markets“
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Date: |
Download-files: |
Time: |
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Thursday, 28. April 2016 |
Audio-only-Recording as MP3-File
(smallest possible size):
- Audio.mp3 (ca.28 Mb) ============================================ Video-Recording for any system with MP4-support:
- Video.mp4 (ca.260 Mb) |
15:15 – 16:15 |
Speaker :
Jean-Philippe BOUCHAUD (Capital Fund Management (Paris) and Ecole
Polytechnique)
Abstract :
How does the
very fact of buying (or selling) an asset modify its price?
This is a
fundamental question, not only to understand how financial markets operate and
whether they are stable,
but also to
shed light on the still active debate on market "efficiency"
(as highlighted
by the split 2013 Nobel Prize in Economics).
One can
measure, as for a physical system, the "response" of the price to a
small perturbation, for example
buying a
total of Q shares where Q is small compared to the market turnover.
The
surprise is that the average impact of such a transaction is not linear in Q
(as one would naively guess)
but behaves
as the square-root of Q. This implies a formal divergence of the linear
response, as for a critical system. Interestingly, the square-root behaviour is
universal, i.e. independent of the market and the epoch.
We will
present a consistent theory for such a non-trivial observation, confirmed by
numerical simulations
and further
experimental observations. Our scenario suggests that markets are intrinsically
fragile and turbulent.