Market reaction to price changes and fat-tailed returns
Jorge Sobehart departs from the idealised concept of rational investors, introducing a simple behavioural model of market reaction to price trends that produces fat-tailed distributions of asset returns in close agreement with historical data
There is hardly a more difficult and timely subject in economics today than the understanding of market behaviour and its impact on asset prices. Changes in prices and market reaction are rarely the idealised random events defined in the academic literature. Price movements are the result of a wide range of events from economic and political changes to shifts in confidence and preferences of market participants. Any meaningful model of price movements has to be able to accommodate both the
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