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| Author: | Farmer J.D. |
| Title: | Market force, ecology and evolution |
| Journal: | Industrial and Corporate Change
2002 : NOV, VOL. 11:5, p. 895-953 |
| Index terms: | Markets Ecology Equilibrium analysis Models |
| Language: | eng |
| Abstract: | Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these phenomena using a non-equilibrium price formation rule, developed in the context of trading with market orders. Due to a more simplicity compared with a standard inter-temporal equilibrium model, it is possible to study multi-period markets analytically. The resulting price dynamics have second-order oscillatory terms. Value investing does not necessarily cause prices to track values. Trend following causes short-term trends in prices, but also causes longer-term oscillations. |
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