Powerful Traders' Interactions Unleash Market Chaos and Volatility
Traders in financial markets interact in complex ways, leading to patterns known as stylized facts. A study created a model with different types of traders, like fundamentalists and chartists, to see how their interactions affect the market. Fundamentalists stabilize the market by using the market's true value, while chartists can destabilize it by following past trends. The study found that in a network where traders interact in a power-law manner, certain patterns like power-law tails and long memory in volatility emerge. This suggests that the diverse interactions between traders play a key role in shaping the behavior of financial markets.