Dynamic instability in a phenomenological model of correlated assets (Articolo in rivista)

Type
Label
  • Dynamic instability in a phenomenological model of correlated assets (Articolo in rivista) (literal)
Anno
  • 2006-01-01T00:00:00+01:00 (literal)
Alternative label
  • Raffaelli, G; Marsili, M (2006)
    Dynamic instability in a phenomenological model of correlated assets
    (literal)
Http://www.cnr.it/ontology/cnr/pubblicazioni.owl#autori
  • Raffaelli, G; Marsili, M (literal)
Note
  • ISI Web of Science (WOS) (literal)
Http://www.cnr.it/ontology/cnr/pubblicazioni.owl#affiliazioni
  • SISSA, INFM, I-34014 Trieste, Italy; Abdus Salam Int Ctr Theoret Phys, I-34014 Trieste, Italy (literal)
Titolo
  • Dynamic instability in a phenomenological model of correlated assets (literal)
Abstract
  • We show that financial correlations exhibit a non-trivial dynamic behaviour. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This captures the fact that correlations determine the optimal portfolio but are affected by investment based on it. We show that such a feedback on correlations gives rise to an instability when the volume of investment exceeds a critical value. Close to the critical point the model exhibits dynamical correlations very similar to those observed in real markets. Maximum likelihood estimates of the model's parameter for empirical data indeed confirm this conclusion, thus suggesting that real markets operate close to a dynamically unstable point. (literal)
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