Time series of financial market prices appear to exhibit fractal properties
The dynamic of financial market prices might be caused by the interactions of agents with different investment horizons and differing interpretations of information, a Bank of England research paper suggests.
According to The Fractal Market Hypothesis and its implications for the stability of financial markets by Nicola Anderson and Joseph Noss, this structure "appears to be associated with a special sort of stability that can be disrupted, causing prices to crash, if the normal interaction of these agents breaks down".
They write: "Time series of financial market prices appear to exhibit fractal properties: that is, under magnification, their pattern becomes increasingly complex, and seems to repeat itself, with a pattern that is qualitatively similar to that of the overall structure."
The paper examines why and how these fractal properties arise, and considers their implications for understanding the causes of financial instability. It offers a quantitative model of investor behaviour and price formation that seeks to account for fractal properties of market prices.
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