Speculative trading: the price multiplier effect
L.P.T.H.E., Université Paris 7, Tour 24, 2 place Jussieu, 75251 Paris
Cedex 5, France
Published online: 15 March 2000
During a speculative episode the price of an item jumps from an initial level to a peak level before more or less returning to level . The ratio is referred to as the amplitude A of the peak. This paper shows that for a given market the peak amplitude is a linear function of the logarithm of the price at the beginning of the speculative episode; with expressed in 1999 euros the relationship takes the form: ; the values of the parameter a turn out to be relatively independent of the market considered: , the values of the parameter b are more market-dependent, but are stable in the course of time for a given market. This relationship suggests that the higher the stakes the more "bullish"the market becomes. Possible mechanisms of this "risk affinity"effect are discussed.
PACS: 64.60.Fr – Equilibrium properties near critical points, critical exponents / 87.23.Ge – Dynamics of social systems
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2000