Bubbles, shocks and elementary technical trading strategies

Fry, John

Abstract

In this paper we provide a unifying framework for a set of seemingly disparate models for bubbles, shocks and elementary technical trading strategies in financial markets. Markets operate by balancing intrinsic levels of risk and return. This seemingly simple observation is commonly over-looked by academics and practitioners alike. Our model shares its origins in statistical physics with others. However, under our approach, changes in market regime can be explicitly shown to represent a phase transition from random to deterministic behaviour in prices. This structure leads to an improved physical and econometric model. We develop models for bubbles, shocks and elementary technical trading strategies. The list of empirical applications is both interesting and topical and includes real-estate bubbles and the on-going Eurozone crisis. We close by comparing the results of our model with purely qualitative findings from the finance literature.

Citation

Fry, J. (2014). Bubbles, shocks and elementary technical trading strategies. European Physical Journal B : Condensed Matter and Complex Systems, 87, Article 1. https://doi.org/10.1140/epjb/e2013-40587-y

• Journal Article Type: Article
• Acceptance Date: Sep 20, 2013
• Online Publication Date: Jan 7, 2014
• Publication Date: 2014
• Deposit Date: Feb 4, 2022
• Journal: European Physical Journal B
• Print ISSN: 1434-6028
• Publisher: EDP Sciences
• Peer Reviewed: Peer Reviewed
• Volume: 87
• Article Number: 1
• DOI: https://doi.org/10.1140/epjb/e2013-40587-y
• Keywords: Statistical and Nonlinear Physics
• Public URL: https://hull-repository.worktribe.com/output/3920990