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What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary

Biondi, Y; Righi, S; (2016) What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary. Journal of Economic Interaction and Coordination , 11 (2) pp. 175-203. 10.1007/s11403-015-0159-3. Green open access

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Abstract

Biondi et al. (Phys A 391(22):5532–5545, 2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory regimes for fundamental information provision, as well as to market confidence conditions among actual and potential investors. We comparatively assess accounting models belonging to two main families: historical cost accounting and mark-to-market (fair value) accounting regimes. Regimes based upon mark-to-market measurement of traded security, while generating higher linear correlation between market prices and fundamental signals, also involve higher market instability and volatility. These regimes also incur more relevant episodes of market exuberance and vagary in some regions of the market confidence space, where lower market liquidity further occurs.

Type: Article
Title: What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary
Open access status: An open access version is available from UCL Discovery
DOI: 10.1007/s11403-015-0159-3
Publisher version: https://doi.org/10.1007/s11403-015-0159-3
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Financial regulation, Asset pricing, Financial bubbles, Market exuberance, Market microstructure, Common knowledge
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science
URI: http://discovery.ucl.ac.uk/id/eprint/10058468
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