This paper presents a tractable model of non-linear dynamics of market returns using a Langevin approach.Due to non-linearity of an interaction potential, the model admits regimes of both small and large return fluctuations. Langevin dynamics are mapped onto an equivalent quantum mechanical (QM)...

The principles of behavioral psychology can explain how crashes occur. In particular, the concept of "stimulus generalization" tells us that organisms tend to respond in the same way to similar stimuli. In a crash, or pre-crash, context, several stimuli - including rising prices, above-average...

Historical data suggest that the base rate for a severe, single-day stock market crash is relatively low. Surveys of individual and institutional investors, conducted regularly over a 26 year period in the United States, show that they assess the probability to be much higher. We examine the...

Do prices and returns in the financial markets exhibit observable patterns, or are they truly ‘random walks’, as predicted by the efficient market hypothesis (EMH)? If there are patterns, the natural question becomes, why do we observe such extreme cycles of bubbles (massive over-valuations)...

Australian Steve Keen was, in fact, one of just 13 registered economists , out of a global total of around 36,000 (yes that really comes out as 0.04%), who actually anticipated the global financial crisis.Knowing this, I think it’s almost impossible not to want to read his latest book,...

Using a semi-supervised topic model on 7,000,000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock and bond market returns to test rational and behavioral hypotheses about market valuation of disaster risk. Focusing on media discourse...

The financial press is a conduit for popular narratives that reflect collective memory about historical events. Some collective memories relate to major stock market crashes, and investors may rely on associated narratives, or "crash narratives," to inform current beliefs and choices. Using...

We report the results of an experiment designed to study whether or not having experienced booms and crashes in naturally occurring asset markets affects subjects' trading behavior in the lab. Active investors in the Shanghai Stock Exchange were recruited to participate in either the Boom...

In the two decades leading up to the 2008 financial crisis, numerous significant changes in federal law greatly reduced transactions costs in financial markets and made possible new types of trading in new types of financial instruments. The driving policy assumption behind these and similar...

This article investigates ostensible financial stability of an economic sector caused by wealth inequality. When a sector is decomposed into two subsectors that possess a severe wealth inequality, the sector in entirety can look financially stable while the two subsectors have opposite extreme...