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|Effect of Rumor Propagation on the Stock Market Dynamics using Cellular Automata
|Cellular automta;rumor propagation
|Stock markets are complex systems, so its market participants exhibit relative independence amongst themselves while analyzing the market information that they have, to make their respective decisions. Besides physical parameters, various other factors are responsible to create chaos in the market dynamics like macroscopic parameters and psychological factors. One such psychological factor affecting the normal behavior of the market participants is rumor spread in the market. Since the market participants in our economy interact with their local neighbors and thus rumor is spread by word-of-mouth communication process. As the rumor influences the beliefs of the individual, thus their decision is dependent upon the behavior of their immediate neighbors. Rumor spread in the market may be a positive rumor or it may be a negative rumor. It has been observed that in case of positive rumor, market participants tend to buy the stock whereas in case of the negative rumor, number of sellers increases in the market. Rumors are part of our everyday life. Despite being well known in our daily life, it is surprising that rumors are almost absent from economic theory. The reason seems intuitive. The economic theory is believed to be theory of rationality whereas rumors are considered to be rather illogical. We build a cellular automaton model for the stock market to illustrate the complexity in the stock market by introducing variables for reflecting stability of the market. We introduced the concepts of rumor propagation to represent the market dynamics. Using this model, behavior of the market participants and their effect on the market dynamics are analyzed. Various constraints are introduced to counter-dynamics of rumor propagation for reflecting the close behavior with stock market and results show the relationship between the rumor propagation and the behavior of stock market.
|Master of Engineering-CSE
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