Preprint Review Version 1 Preserved in Portico This version is not peer-reviewed

Three Different Ways Synchronization can Cause Contagion in Financial Markets

Version 1 : Received: 28 August 2018 / Approved: 29 August 2018 / Online: 29 August 2018 (00:57:01 CEST)

A peer-reviewed article of this Preprint also exists.

Massad, N.; Andersen, J.V. Three Different Ways Synchronization Can Cause Contagion in Financial Markets. Risks 2018, 6, 104. Massad, N.; Andersen, J.V. Three Different Ways Synchronization Can Cause Contagion in Financial Markets. Risks 2018, 6, 104.

Abstract

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to "change blindness", a trait in human decision making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance and the use of certain (decoupled) trading strategies. The third pathway occurs through the effects of communication and its impact on human decision making. A model is introduced in which financial market performance has an impact on decision making through communication between people. Conversely, the sentiment created via communication has an impact on financial market performance.

Keywords

synchronization; human decision makin; decoupling; opinion formation; agent-based modeling

Subject

Social Sciences, Behavior Sciences

Comments (0)

We encourage comments and feedback from a broad range of readers. See criteria for comments and our Diversity statement.

Leave a public comment
Send a private comment to the author(s)
* All users must log in before leaving a comment
Views 0
Downloads 0
Comments 0
Metrics 0


×
Alerts
Notify me about updates to this article or when a peer-reviewed version is published.
We use cookies on our website to ensure you get the best experience.
Read more about our cookies here.