Financial market model reveals how information drives market fragility and contagion
The article presents a model of financial markets that mimics real-world price movements and behaviors. It looks at how different types of traders, like chartists and fundamentalists, interact and how information spreads among them. The model shows that imitation in price setting can lead to market instability. By adding random traders, the model suggests that they can help stabilize the market. The researchers also suggest that reducing the amount of information in the market could help reduce extreme fluctuations.