Greed drives market

十一月 7, 1997

Boom and bust stock market fluctuations are caused by greedy traders rather than political or economic instability, according to a physicist from the University of Manchester.

His research overturns the traditional economic view that the laws governing markets are driven by virtually impenetrable political, banking and industrial factors.

Instead, the study conducted by Guido Calderelli suggests that greed is the reason for the kind of turbulence which saw a buying orgy resulting in a record 1.2 billion shares changing hands on Wall Street last Tuesday. This was the day after the Dow Jones index slumped by 550 points.

Dr Calderelli's computer program simulates speculators trading with the sole aim of increasing their own wealth.

Initially stock markets are randomly priced and traders buy at random. From then on they buy and sell according to recent price history. After each buying round the trader with the least capital is wiped out and replaced by a newcomer.

As the simulation progresses, a complex pattern of peaks and troughs in the price of each stock emerges. The structure of these fluctuations corresponds almost exactly to real data from the stock market, according to Dr Calderelli.

He said the model worked best for the volatile and competitive foreign exchange markets.

The interactions among traders in the simulation occasionally leads to crashes which amount to the digital equivalent of Black Wednesday in 1987, the most severe market shake-out in history.

"The crashes arise only as a result of collective trading activity and there is almost no warning of their coming," Dr Calderelli said.

He now plans to use the model to test the belief that a central bank or authority would be necessary to ensure a stable market.

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