STOCK market investors who buy and sell on the flip of a coin might sound irresponsible, but a handful of random traders could be just what markets need to avoid bubbles and subsequent crashes.
Financial booms and busts occur when traders all rush to purchase or sell stock just because others around them are. “I see someone investing, I suppose that they probably have more information than me,” says Alessandro Pluchino of the University of Catania, Italy.
Pluchino and his colleagues wondered whether it was possible to stop this cascade of copycat behaviour by introducing a random element – traders who ignore all available information and instead buy or sell with equal probability.
More at New Scientist
How much can I earn by becoming a ‘scientist’ and studying the obvious and coming up with farcical conclusions?
Yes – markets trend because one side of the buy/sell equation is overweight!
Yes – central banks do try to calm the market by taking the ‘wrong’ side of the trend!
Can the central banks stop bubbles? Not by the available evidence – they puff and puff bet eventually the house falls down once the actual bricks decide they need to escape.
Do central banks cause bubbles – once again the available evidence says they do
Gets back to the old saying – “Economists exist to make weather forecasters look good”
Did you actually read the article?
If you had you would have noted that the evidence seems to indicate that panics can be eased not by taking the opposite side of the move but by introducing a random element into both buy and sell side.
You would have also noted that the author of the article was a physicist not an economist. And has to how much you would earn as a scientist on Wall Street – last I heard the starting salary for either a physicist or mathematician was somewhere north of $US 1 million plus bonuses.
Yes I read it it. But, how can you ease a stock bubble by buying? All it would do is add volatility I would have thought which seems to be what most people find is the problem with bubbles (that and the fact that the greedy tend to get caught on the wrong side of them) It seems to me the only ‘random’ act would be a sudden big trade on the opposite side of the bubble otherwise you are just joining the party
Sorry I missed the fact that this was a physicist. Starting salary of a million – wow I should have stuck to the laws of thermodynamics
“…traders who ignore all available information and instead buy or sell with equal probability…”
Sounds like a plan.
Sounds like a few traders I’ve met