COMPLEX MARKETS
Coordinator
Prof. Mark Salmon, Warwick Business School
Participants
- France: Universite Aix-Marseille III
- Germany: University of Kiel
- Italy: Abdus Salam International Centre for Theoretical Physics
- Italy: University of Cagliari
- The Netherlands: University of Amsterdam
Description
Complex Markets aims to explore an alternative to the classical theory of rational behaviour of a single agent. The alternative proposes a network of heterogeneous agents within markets – each of which can employ rational behaviour – but the interaction between these agents allows collective effects to arise.
In this way, the financial market behaves as a complex system. Within such a heterogeneous system, traders can either base their investment decisions on the market fundamentals (dividends, earnings, interest rates) or go by patterns and trends in recent prices. Irregular switching between these two strategies can occur, resulting in irregular price fluctuations.
The Complex Markets team collects and analyses data on behaviour in specific markets and studies their structure, evaluating the extent and effects of behaviourial networks. These multi agent models should form the basis for understanding the processes that lead to bubbles and crashes. The basic data enables to derive the general principles of the evolutionary approach to the behaviour of financial markets, ranging from simple models of a rational agent forecasting on the basis of unknown parameters, to complex models with interacting traders with co-evolving strategies.