Amadeo Alentorn and Matus Mrazik review recent academic research in the field of econophysics, and explain its relevance to investors.
Interacting agents and resulting market returns
The animation above shows a simulation of the stock market using a model developed for studying changes of magnetism in metals. Herding behaviour (large colour blocks emerging in the upper box) leads to more volatile market conditions (sudden moves in the line, representing market cumulative returns, in the lower box). Lack of herding leads to less volatile market conditions.
There is an analogy between magnetism and social conformity. The opinion of each market agent (represented by squares within the grid in the animation) is affected by the opinions of his or her neighbours in the network, as well as by an external influence such as news. Due to noise or uncertainty, some agents may change their opinions and create local regions of dissent.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
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