Statistical versus clinical prediction of the stock market

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Nature15 May doi: Xavier Gabaix 1 Correspondence and requests for materials should be addressed to X. Top of page Abstract Insights into the dynamics of a complex system are often gained by focusing on large fluctuations.

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For the financial system, huge databases now exist that facilitate the analysis of large fluctuations and the characterization of their statistical behaviour 1, 2.

Power laws appear to describe histograms of relevant financial fluctuations, such as fluctuations in stock price, trading volume and the number of trades 3, 4, 5, 6, 7, 8, 9, Surprisingly, the exponents that characterize these power laws are similar for different types and sizes of markets, for different market trends and even for different countries—suggesting that a generic theoretical basis may underlie these phenomena.

Here we propose a model, based on a plausible set of assumptions, which provides an explanation for these empirical power laws. Our model is based on the hypothesis that large movements statistical versus clinical prediction of the stock market stock market activity arise from the trades of large participants. Starting from an empirical characterization of the size distribution of those large market participants mutual fundswe show that the power laws observed in financial data arise when the trading behaviour is performed in an optimal way.

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Our model additionally explains certain striking empirical regularities that describe the relationship between large fluctuations patterns of binary options trading signals franco prices, trading volume and the number of trades.

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Login via your institution. My account Submit manuscript Register Subscribe. Access To read this story in full you will need to login or make a payment see right. Article Links Figures and tables Supplementary info Article Tools Send to a friend Export citation Export references Rights and permissions Search Pubmed for Xavier Gabaix Parameswaran Gopikrishnan Vasiliki Plerou H.

Eugene Stanley nature jobs Corporate Communications Manager, Springer Nature, Japan Springer Nature Junior Group Leader Position — Genomic and proteomic screening for placental dysfunction biomarkers. Department of Medicine, Universidad de los Andes, Chile More science jobs.

Eugene Stanley 2 Department of Economics, Massachusetts Institute of Technology, Cambridge, MassachusettsUSA Center for Polymer Studies and Department of Physics, Boston University, Boston, MassachusettsUSA Present address: Goldman Sachs and Co. I want to purchase this article Price: Rent this article from DeepDyve.

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