Aggregate excess demand on wall street

The rational investor behavior and news triggered price change assumed by the Efficient Market Hypothesis (EMH) could not explain most of asset price variances, suggesting the need for an alternative theory. The Behavioral Finance Theory (BFT) advocates those economic judgments and decisions in mark...

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Autores principales:	Qingyuan Han, Steve Keen
Formato:	article
Lenguaje:	EN
Publicado:	Elsevier 2021
Materias:	Aggregate excess demand Prediction of market directions Market maker inventory Walrasian general equilibrium Utility maximization Perfect competition Science (General) Q1-390 Social sciences (General) H1-99
Acceso en línea:	https://doaj.org/article/7ae917f8a7e2444389e66425b95a5961
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spelling	oai:doaj.org-article:7ae917f8a7e2444389e66425b95a59612021-12-02T05:02:48ZAggregate excess demand on wall street2405-844010.1016/j.heliyon.2021.e08355https://doaj.org/article/7ae917f8a7e2444389e66425b95a59612021-11-01T00:00:00Zhttp://www.sciencedirect.com/science/article/pii/S2405844021024580https://doaj.org/toc/2405-8440The rational investor behavior and news triggered price change assumed by the Efficient Market Hypothesis (EMH) could not explain most of asset price variances, suggesting the need for an alternative theory. The Behavioral Finance Theory (BFT) advocates those economic judgments and decisions in markets are often irrational because of systematic and predictable psychological bias. However, due to the lack of measurable investment behaviors, proponents of the efficient market hypothesis argue that irrational behavior could not be reliably identified and predicted. Here we show that the price-takers behavior gauged by the normalized excess demand (NED) can be measured and the results explain most of the variances of SP500 daily returns over eight years of available data, the remaining variances are due to price-makers behavior, an influence abstracted out by the Walrasian general equilibrium theory. The interactions between behaviors of price-takers and price-makers drive market price fluctuations. For short-term prediction, we demonstrate that detected market makers' inventory positions often lead to intraday and daily market reversals. For long-term forecasting, feedback analyses of NED and SP500 data reveal signals of looming plunges and recovery processes in 2000, 2008, and 2020 market crises.Qingyuan HanSteve KeenElsevierarticleAggregate excess demandPrediction of market directionsMarket maker inventoryWalrasian general equilibriumUtility maximizationPerfect competitionScience (General)Q1-390Social sciences (General)H1-99ENHeliyon, Vol 7, Iss 11, Pp e08355- (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Aggregate excess demand Prediction of market directions Market maker inventory Walrasian general equilibrium Utility maximization Perfect competition Science (General) Q1-390 Social sciences (General) H1-99
spellingShingle	Aggregate excess demand Prediction of market directions Market maker inventory Walrasian general equilibrium Utility maximization Perfect competition Science (General) Q1-390 Social sciences (General) H1-99 Qingyuan Han Steve Keen Aggregate excess demand on wall street
description	The rational investor behavior and news triggered price change assumed by the Efficient Market Hypothesis (EMH) could not explain most of asset price variances, suggesting the need for an alternative theory. The Behavioral Finance Theory (BFT) advocates those economic judgments and decisions in markets are often irrational because of systematic and predictable psychological bias. However, due to the lack of measurable investment behaviors, proponents of the efficient market hypothesis argue that irrational behavior could not be reliably identified and predicted. Here we show that the price-takers behavior gauged by the normalized excess demand (NED) can be measured and the results explain most of the variances of SP500 daily returns over eight years of available data, the remaining variances are due to price-makers behavior, an influence abstracted out by the Walrasian general equilibrium theory. The interactions between behaviors of price-takers and price-makers drive market price fluctuations. For short-term prediction, we demonstrate that detected market makers' inventory positions often lead to intraday and daily market reversals. For long-term forecasting, feedback analyses of NED and SP500 data reveal signals of looming plunges and recovery processes in 2000, 2008, and 2020 market crises.
format	article
author	Qingyuan Han Steve Keen
author_facet	Qingyuan Han Steve Keen
author_sort	Qingyuan Han
title	Aggregate excess demand on wall street
title_short	Aggregate excess demand on wall street
title_full	Aggregate excess demand on wall street
title_fullStr	Aggregate excess demand on wall street
title_full_unstemmed	Aggregate excess demand on wall street
title_sort	aggregate excess demand on wall street
publisher	Elsevier
publishDate	2021
url	https://doaj.org/article/7ae917f8a7e2444389e66425b95a5961
work_keys_str_mv	AT qingyuanhan aggregateexcessdemandonwallstreet AT stevekeen aggregateexcessdemandonwallstreet
_version_	1718400718692417536

Aggregate excess demand on wall street

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