Tobias Preis, Sebastian Golke, Wolfgang Paul, and Johannes J. Schneider Europhysics Letters 75, 510-516 (2006) — We introduce a simple model for simulating financial markets, based on an order book, in which several agents trade one asset at a virtual exchange continuously. We show that a market trend, i.e. an asymmetric order flow of any type, leads to a non-trivial Hurst exponent for the price development, but not to "fat-tailed" return distributions. When one additionally couples the order entry depth to the prevailing trend, also the stylized empirical fact of "fat tails" can be reproduced by our Order Book Model.

Selected Publications in Econophysics and Interdisciplinary Physics in 2003

[1999] [2000] [2001] [2002] [2003] [2004] [2005] [2006] [2007] [2008] [2009] [2010] [2011]

Perello J. & Masoliver J., Option pricing and perfect hedging on correlated stocks, Physica A 330, 622-652 (2003)

Zhou W.-X. & Sornette D., Evidence of a worldwide stock market log-periodic anti-bubble since mid-2000, Physica A 330, 543-583 (2003)

Zhou W.-X. & Sornette D., Renormalization group analysis of the 2000-2002 anti-bubble in the US S&P500 index: Explanation of the hierarchy of five crashes and prediction, Physica A 330, 584-604 (2003)

Kwapien J., Drozdz S. & Speth J., Alternation of different fluctuation regimes in the stock market dynamics, Physica A 330, 605-621 (2003)

Muchnik L., Slanina F. & Solomon S., The interacting gaps model: Reconciling theoretical and numerical approaches to limit-order models, Physica A 330, 232-239 (2003)

Raberto M., Cincotti S., Focardi S.M. & Marchesi M., Trader's long-run wealth in an artificial financial market, Computational Economics 22, 255-272 (2003)

Forster M.R. & Kryukov A., The Emergence of the Macroworld: A Study of Intertheory Relations in Classical and Quantum Mechanics, Philosophy of Science 70, 1039-1051 (2003)

Giardina I. & Bouchaud J.-P., Bubbles, crashes and intermittency in agent based market models, European Physical Journal B 31, 421-437 (2003)

Gligor M. & Ignat M., Scaling in the distribution of marks in high school, Fractals 11, 363-368 (2003)

Lo C.F., Lie algebraic approach for Fokker-Planck dynamics with space-dependent diffusion and mean-reverting drift, European Physical Journal B 32, 503-505 (2003)

Livina V., Ashkenazy Y., Kizner Z., Strygin V., Bunde A. & Havlin S., A stochastic model of river discharge fluctuations, Physica A 330, 283-290 (2003)

Maslov S. & Roehner B.M., Does the price multiplier effect also hold for stocks?, International Journal of Modern Physics C 14, 1439-1451 (2003)

Lo C.F., Exact propagator of the Fokker-Planck equation with logarithmic factors in diffusion and drift terms, Physics Letters, Section A 319, 110-113 (2003)

Rawal S. & Rodgers G.J., Modelling inflation as a random process, International Journal of Theoretical and Applied Finance 6, 821-827 (2003)

Smith E., Farmer J.D., Gillemot L. & Krishnamurthy S., Statistical theory of the continuous double auction, Quantitative Finance 3, 481-514 (2003)

Avellaneda M. & Lipkin M.D., A market-induced mechanism for stock pinning, Quantitative Finance 3, 417-425 (2003)

Stauffer D. & Weisbuch G., A market of inhomogeneous threshold cellular automata, International Journal of Modern Physics B 17, 5495-5501 (2003)

Metzler R. & Horn C., Evolutionary minority games: The benefits of imitation, Physica A 329, 484-498 (2003)

Viswanathan G.M., Fulco U.L., Lyra M.L. & Serva M., The origin of fat-tailed distributions in financial time series, Physica A 329, 273-280 (2003)

Costa R.L. & Vasconcelos G.L., Long-range correlations and nonstationarity in the Brazilian stock market, Physica A 329, 231-248 (2003)

Zhou W.-X. & Sornette D., 2000-2003 real estate bubble in the UK but not in the USA, Physica A 329, 249-263 (2003)

Ding N., Xi N. & Wang Y., Effects of saving and spending patterns on holding time distribution, European Physical Journal B 36, 149-153 (2003)

McCauley J.L., Scaling, correlations & cascades in finance and turbulence, Physica A 329, 213-221 (2003)

McCauley J.L. & Gunaratne G.H., An empirical model of volatility of returns and option pricing, Physica A 329, 178-198 (2003)

McCauley J.L., Thermodynamic analogies in economics and finance: Instability of markets, Physica A 329, 199-212 (2003)

Kozuki N. & Fuchikami N., Dynamical model of financial markets: Fluctuating 'temperature' causes intermittent behavior of price changes, Physica A 329, 222-230 (2003)

Bordogna C.M. & Albano E.V., Simulation of social processes: Application to social learning, Physica A 329, 281-286 (2003)

Krause A., Inventory effects on daily returns in financial markets, International Journal of Theoretical and Applied Finance 6, 739-765 (2003)

Kinzel W. & Kanter I., Disorder generated by interacting neural networks: Application to econophysics and cryptography, Journal of Physics A 36, 11173-11186 (2003)

Galla T., Coolen A.C.C. & Sherrington D., Dynamics of a spherical minority game, Journal of Physics A 36, 11159-11172 (2003)

Gudowska-Nowak E., Janik R.A., Jurkiewicz J. & Nowak M.A., Infinite products of large random matrices and matrix-valued diffusion, Nuclear Physics B 670, 479-507 (2003)

Feigenbaum J., Financial physics, Reports on Progress in Physics 66, 1611-1649 (2003)

Acharyya M. & Acharyya A.B., Modeling and computer simulation of an insurance policy: A search for maximum profit, International Journal of Modern Physics C 14, 1041-1046 (2003)

Mizuta H., Steiglitz K. & Lirov E., Effects of price signal choices on market stability, Journal of Economic Behavior and Organization 52, 235-251 (2003)

Kleczkowski A. & Gora P.F., Quenched disorder and long-tail distributions, Physica A 327, 378-398 (2003)

Iglesias J.R., Goncalves S., Pianegonda S., Vega J.L. & Abramson G., Wealth redistribution in our small world, Physica A 327, 12-17 (2003)

De Martino A., Dynamics of multi-frequency minority games, European Physical Journal B 35, 143-152 (2003)

Benjamin Jr. L.T., Behavioral Science and the Nobel Prize: A History, American Psychologist 58, 731-741 (2003)

Gavrishchaka V.V. & Ganguli S.B., Volatility forecasting from multiscale and high-dimensional market data, Neurocomputing 55, 285-305 (2003)

Huang N.E., Wu M.-L., Qu W., Long S.R. & Shen S.S.P., Applications of Hilbert-Huang transform to non-stationary financial time series analysis, Applied Stochastic Models in Business and Industry 19, 245-268 (2003)

De Martino A., Giardina I. & Mosetti G., Statistical mechanics of the mixed majority-minority game with random external information, Journal of Physics A 36, 8935-8954 (2003)

Figueiredo A., Gleria I., Matsushita R. & Da Silva S., On the origins of truncated Levy flights, Physics Letters, Section A 315, 51-60 (2003)

Rothenstein R. & Pawelzik K., Evolution and anti-evolution in a minimal stock market model, Physica A 326, 534-543 (2003)

Llas M., Gleiser P.M., Diaz-Guilera A. & Perez C.J., Optimization as a result of the interplay between dynamics and structure, Physica A 326, 567-577 (2003)

Matsushita R., Rathie P. & Da Silva S., Exponentially damped Levy flights, Physica A 326, 544-555 (2003)

Kaizoji T., Scaling behavior in land markets, Physica A 326, 256-264 (2003)

Sysi-Aho M., Chakraborti A. & Kaski K., Intelligent minority game with genetic crossover strategies, European Physical Journal B 34, 373-377 (2003)

Lynch P.E. & Zumbach G.O., Market heterogeneities and the causal structure of volatility, Quantitative Finance 3, 320-331 (2003)

Sornette D., Takayasu H. & Zhou W.-X., Finite-time singularity signature of hyperinflation, Physica A 325, 492-506 (2003)

Gudowska-Nowak E., Kaminska A., Papp G. & Brickmann J., Free random variables and molecular spectra, Physica A 325, 48-54 (2003)

Wang Y., Ding N. & Zhang L., The circulation of money and holding time distribution, Physica A 324, 665-677 (2003)

Keen S., Standing on the toes of pygmies: Why econophysics must be careful of the economic foundations on which it builds, Physica A 324, 108-116 (2003)

Rosenow B., Gopikrishnan P., Plerou V. & Stanley H.E., Dynamics of cross-correlations in the stock market, Physica A 324, 241-246 (2003)

Sazuka N., Ohira T., Marumo K., Shimizu T., Takayasu M. & Takayasu H., A dynamical structure of high frequency currency exchange market, Physica A 324, 366-371 (2003)

Aiba Y., Hatano N., Takayasu H., Marumo K. & Shimizu T., Triangular arbitrage and negative auto-correlation of foreign exchange rates, Physica A 324, 253-257 (2003)

Michael F. & Johnson M.D., Derivative pricing with non-linear Fokker-Planck dynamics, Physica A 324, 359-365 (2003)

Mizuno T., Kurihara S., Takayasu M. & Takayasu H., Analysis of high-resolution foreign exchange data of USD-JPY for 13 years, Physica A 324, 296-302 (2003)

Micciche S., Bonanno G., Lillo F. & Mantegna R.N., Degree stability of a minimum spanning tree of price return and volatility, Physica A 324, 66-73 (2003)

Jensen M.H., Johansen A. & Simonsen I., Inverse statistics in economics: The gain-loss asymmetry, Physica A 324, 338-343 (2003)

Corso G., Lucena L.S. & Thome Z.D., The small-world of economy: A speculative proposal, Physica A 324, 430-436 (2003)

Sladkowski J., Giffen paradoxes in quantum market games, Physica A 324, 234-240 (2003)

Ausloos M. & Bronlet Ph., Strategy for investments from Zipf law(s), Physica A 324, 30-37 (2003)

Berg D.B. & Popkov V.V., General numerical model of the competition life cycle: From physics to economy, Physica A 324, 167-173 (2003)

Cincotti S., Focardi S.M., Marchesi M. & Raberto M., Who wins? Study of long-run trader survival in an artificial stock market, Physica A 324, 227-233 (2003)

Gaffeo E., Gallegati M., Giulioni G. & Palestrini A., Power laws and macroeconomic fluctuations, Physica A 324, 408-416 (2003)

Montagna G., Morelli M., Nicrosini O., Amato P. & Farina M., Pricing derivatives by path integral and neural networks, Physica A 324, 189-195 (2003)

Piotrowski E.W., Fixed point theorem for simple quantum strategies in quantum market games, Physica A 324, 196-200 (2003)

Sznajd-Weron K. & Weron R., How effective is advertising in duopoly markets?, Physica A 324, 437-444 (2003)

Silva A.C. & Yakovenko V.M., Comparison between the probability distribution of returns in the Heston model and empirical data for stock indexes, Physica A 324, 303-310 (2003)

Fischer R. & Braun D., Nontrivial bookkeeping: A mechanical perspective, Physica A 324, 266-271 (2003)

Takayasu M. & Takayasu H., Self-modulation processes and resulting generic 1/f fluctuations, Physica A 324, 101-107 (2003)

Maskawa J.-I., Multivariate Markov chain modeling for stock markets, Physica A 324, 317-322 (2003)

Struzik Z.R., Econonatology: The physics of the economy in labour, Physica A 324, 344-351 (2003)

Di Matteo T., Aste T. & Dacorogna M.M., Scaling behaviors in differently developed markets, Physica A 324, 183-188 (2003)

Challet D. & Stinchcombe R., Limit order market analysis and modelling: On a universal cause for over-diffusive prices, Physica A 324, 141-145 (2003)

Marsili M., Scale invariance and criticality in financial markets, Physica A 324, 17-24 (2003)

Kertesz J., Kullmann L., Zawadowski A.G., Karadi R. & Kaski K., Correlations and response: Absence of detailed balance on the stock market, Physica A 324, 74-80 (2003)

Potters M. & Bouchaud J.-P., More statistical properties of order books and price impact, Physica A 324, 133-140 (2003)

Giardina I. & Bouchaud J.-P., Volatility clustering in agent based market models, Physica A 324, 6-16 (2003)

Alvarez-Ramirez J., Suarez R. & Ibarra-Valdez C., Trading strategies, feedback control and market dynamics, Physica A 324, 220-226 (2003)

Tsallis C., Anteneodo C., Borland L. & Osorio R., Nonextensive statistical mechanics and economics, Physica A 324, 89-100 (2003)

Tang L.-H., Langevin modelling of high-frequency Hang-Seng index data, Physica A 324, 272-277 (2003)

Chen K. & Jayaprakash C., Statistical analysis of strait time index and a simple model for trend and trend reversal, Physica A 324, 258-265 (2003)

Iori G., Daniels M.G., Farmer J.D., Gillemot L., Krishnamurthy S. & Smith E., An analysis of price impact function in order-driven markets, Physica A 324, 146-151 (2003)

Holyst J.A. & Wojciechowski W., The effect of Kapitza pendulum and price equilibrium, Physica A 324, 388-395 (2003)

Wan Abdullah W.A.T., Emergence of heterogeneity in an agent-based model, Physica A 324, 311-316 (2003)

Sutton J., The variance of corporate growth rates, Physica A 324, 45-48 (2003)

Bottazzi G. & Secchi A., A stochastic model of firm growth, Physica A 324, 213-219 (2003)

Sherrington D. & Galla T., The minority game: Effects of strategy correlations and timing of adaptation, Physica A 324, 25-29 (2003)

Elgazzar A.S., Applications of small-world networks to some socio-economic systems, Physica A 324, 402-407 (2003)

Flitney A.P. & Abbott D., Quantum models of Parrondo's games, Physica A 324, 152-156 (2003)

Yamasaki K. & Mackin K.J., The extraction of macromodel and origin of long-ranged correlations, Physica A 324, 417-423 (2003)

Laureti P. & Zhang Y.-C., Matching games with partial information, Physica A 324, 49-65 (2003)

D'Hulst R. & Rodgers G.J., Efficiency and persistence in models of adaptation, Physica A 324, 323-329 (2003)

Gabaix X., Gopikrishnan P., Plerou V. & Stanley H.E., Understanding the cubic and half-cubic laws of financial fluctuations, Physica A 324, 1-5 (2003)

Cook W. & Ormerod P., Power law distribution of the frequency of demises of US firms, Physica A 324, 207-212 (2003)

Aoyama H., Souma W. & Fujiwara Y., Growth and fluctuations of personal and company's income, Physica A 324, 352-358 (2003)

Tanaka-Yamawaki M., Two-phase oscillatory patterns in a positive feedback agent model, Physica A 324, 380-387 (2003)

Ausloos M., Clippe P. & Pekalski A., Simple model for the dynamics of correlations in the evolution of economic entities under varying economic conditions, Physica A 324, 330-337 (2003)

Matsuno K., The internalist perspective on inevitable arbitrage in financial markets, Physica A 324, 278-284 (2003)

Johansen A., Characterization of large price variations in financial markets, Physica A 324, 157-166 (2003)

Bottazzi G. & Devetag G., A laboratory experiment on the minority game, Physica A 324, 124-132 (2003)

Ponzi A., Yasutomi A. & Kaneko K., A non-linear model of economic production processes, Physica A 324, 372-379 (2003)

Souma W., Fujiwara Y. & Aoyama H., Complex networks and economics, Physica A 324, 396-401 (2003)

Onnela J.-P., Chakraborti A., Kaski K. & Kertesz J., Dynamic asset trees and Black Monday, Physica A 324, 247-252 (2003)

Almendral J.A., Lopez L. & Sanjuan M.A.F., Information flow in generalized hierarchical networks, Physica A 324, 424-429 (2003)

Ting J.J.-L., Causalities of the Taiwan stock market, Physica A 324, 285-295 (2003)

Drozdz S., Grummer F., Ruf F. & Speth J., Log-periodic self-similarity: An emerging financial law?, Physica A 324, 174-182 (2003)

De Fabritiis G., Pammolli F. & Riccaboni M., On size and growth of business firms, Physica A 324, 38-44 (2003)

Gaffeo E., Gallegati M. & Palestrini A., On the size distribution of firms: Additional evidence from the G7 countries, Physica A 324, 117-123 (2003)

Manolova P., Tong C.L. & Deissenberg C., Money and exchange in an economy with spatially differentiated agents, Physica A 324, 445-453 (2003)

Cohen M.H. & Natoli V.D., Risk and utility in portfolio optimization, Physica A 324, 81-88 (2003)

Kim K. & Yoon S.-M., Dynamical behavior of continuous tick data in futures exchange market, Fractals 11, 131-136 (2003)

Kutner R. & Switala F., Stochastic simulations of time series within Weierstrass-Mandelbrot walks, Quantitative Finance 3, 201-211 (2003)

Challet D. & Stinchcombe R., Non-constant rates and over-diffusive prices in a simple model of limit order markets, Quantitative Finance 3, 155-162 (2003)

Feng Z., Rongqiu C. & Xinping X., Fractal character of stock price-volume relation and regulation of stock price manipulation, Fractals 11, 173-181 (2003)

Bacry E. & Muzy J.F., Log-infinitely divisible multifractal processes, Communications in Mathematical Physics 236, 449-475 (2003)

Gabaix X., Gopikrishnan P., Plerou V. & Stanley H.E., A theory of power-law distributions in financial market fluctuations, Nature 423, 267-270 (2003)

Piotrowski E.W. & Sladkowski J., An Invitation to Quantum Game Theory, International Journal of Theoretical Physics 42, 1089-1099 (2003)

Piotrowski E.W. & Sladkowski J., Trading by Quantum Rules: Quantum Anthropic Principle, International Journal of Theoretical Physics 42, 1101-1106 (2003)

Farhadi A.A. & Vvedensky D.D., Risk, randomness, crashes and quants, Contemporary Physics 44, 237-257 (2003)

Fujiwara Y., Souma W., Aoyama H., Kaizoji T. & Aoki M., Growth and fluctuations of personal income, Physica A 321, 598-604 (2003)

Ferreira F.F., Francisco G., Machado B.S. & Muruganandam P., Time series analysis for minority game simulations of financial markets, Physica A 321, 619-632 (2003)

Lim S.C. & Muniandy S.V., Generalized Ornstein-Uhlenbeck processes and associated self-similar processes, Journal of Physics A 36, 3961-3982 (2003)

Yip K.F., Hui P.M., Lo T.S. & Johnson N.F., Efficient resource distribution in a minority game with a biased pool of strategies, Physica A 321, 318-324 (2003)

Lee K., Hui P.M. & Johnson N.F., The minority game with different payoff functions: Crowd-anticrowd theory, Physica A 321, 309-317 (2003)

Lyra M.L., Costa U.M.S., Costa Filho R.N. & Andrade Jr. J.S., Generalized Zipf's law in proportional voting processes, Europhysics Letters 62, 131-137 (2003)

Voit J., From Brownian motion to operational risk: Statistical physics and financial markets, Physica A 321, 286-299 (2003)

Guhr T. & Kalber B., A new method to estimate the noise in financial correlation matrices, Journal of Physics A 36, 3009-3032 (2003)

Colangelo G., Lapenna V. & Telesca L., Analysis of correlation properties in geoelectrical data, Fractals 11, 27-38 (2003)

Sornette D. & Ide K., Theory of self-similar oscillatory finite-time singularities, International Journal of Modern Physics C 14, 267-275 (2003)

Jha R., Kaw P.K., Kulkarni D.R. & Parikh J.C., Evidence of Levy stable process in tokamak edge turbulence, Physics of Plasmas 10, 699-704 (2003)

Stanislavsky A.A., Black-Scholes model under subordination, Physica A 318, 469-474 (2003)

Piotrowski E.W., Sladkowski J. & Syska J., Interference of quantum market strategies, Physica A 318, 516-528 (2003)

Piotrowski E.W. & Sladkowski J., Quantum English auctions, Physica A 318, 505-515 (2003)

Makowiec D., Stock market scale by artificial insymmetrized patterns, Physica A 318, 475-495 (2003)

Piotrowski E.W. & Sladkowski J., The merchandising mathematician model: Profit intensities, Physica A 318, 496-504 (2003)

Govindan R.B., Bunde A. & Havlin S., Volatility in atmospheric temperature variability, Physica A 318, 529-536 (2003)

Chowdhury D. & Stauffer D., Sole-Manrubia model of biological evolutions: Some new insights, Physica A 318, 461-468 (2003)

Jefferies P., Lamper D. & Johnson N.F., Anatomy of extreme events in a complex adaptive system, Physica A 318, 592-600 (2003)

Stanley H.E., Statistical physics and economic fluctuations: Do outliers exist?, Physica A 318, 279-292 (2003)

Solomon S. & Levy M., Pioneers on a new continent: On physics and economics, Quantitative Finance 3, - (2003)

Matia K., Ashkenazy Y. & Stanley H.E., Multifractal properties of price fluctuations of stocks and commodities, Europhysics Letters 61, 422-428 (2003)

Krawiecki A. & Holyst J.A., Stochastic resonance as a model for financial market crashes and bubbles, Physica A 317, 597-608 (2003)

Bershadskii A., Self-averaging phenomenon and multiscaling in Hong Kong stock market, Physica A 317, 591-596 (2003)

Lillo F., Farmer J.D. & Mantegna R.N., Econophysics: Master curve for price-impact function, Nature 421, 129-130 (2003)

Plerou V., Gopikrishnan P. & Stanley H.E., Econophysics: Two-phase behaviour of financial markets, Nature 421, 130- (2003)

Corso G., Lucena L.S. & Thome Z.D., Are social structures determined by the economy?, International Journal of Modern Physics C 14, 73-80 (2003)

Schulze C., Advertising in the Sznajd marketing model, International Journal of Modern Physics C 14, 95-98 (2003)

Telesca L., Colangelo G., Lapenna V. & Macchiato M., Monofractal and multifractal characterization of geoelectrical signals measured in southern Italy, Chaos, Solitons and Fractals 18, 385-399 (2003)